What are shares?
When you buy shares in a company, you are buying a part of that company. This means you share in the company's performance in the form of profits which can be given to you as dividends and/or capital growth through the value of your shares increasing.
The company you are investing in benefits by using your money and that of other investors to finance its business or its expansion, without having to borrow money.
Benefits of investing in shares
Outperforms other investments over the longer term
Although past performance is no indication of future performance, history suggests that Australian shares have outperformed other types of investment over the longer term. To find out more you can read the report (PDF 128KB*) by independent actuaries Towers Perrin comparing the performance of shares to other investments for the period ending December 2003.
Tax benefits
Where companies have already paid tax on their profits, tax credits known as franking credits may be attached to the dividends the company pays to you. These franking credits can be used to offset tax payable by you on other income. In addition, shares held for more than 12 months qualify for a 50% discount on any capital gains tax payable. Find out more about tax.
Diversification
Many people know the saying "don't put all your eggs in one basket". The Australian sharemarket helps you to do this by offering a wide choice of companies in which to invest. There are over 1700 companies listed on ASX. These companies are involved in a wide range of industries covering most sectors of the economy including financial services, industrials and healthcare. By investing in a range of companies you can spread your risk.
Flexibility
You can buy and sell shares quickly. You can sell shares and generally have access to your money in no more than three days. Other investments often take longer to sell and get your money back. This concept is known as liquidity. Remember some shares can be traded quicker than others due to their increased liquidity. (Liquid investments have the benefit of greater flexibility).
Control over your financial future
You can decide exactly how your money is invested, enabling you to have a lot of control over your finances. You can of course choose to share this responsibility with a stock broker who can advise you on what shares to buy and sell.
What does it cost?
Trading shares has become much cheaper in recent years as stock brokers have made use of new technology to provide a better service to you. Buying and selling shares involves a one off charge called brokerage. Brokerage costs vary depending on the level of service you require, but brokerage usually works out to be one of the cheapest ways of buying an investment. Find out more about finding a stock broker.
What risks are there?
Although the sharemarket historically has outperformed other investments over the long term, the market can experience volatility in the short term. Individual stock prices can go down as well as up. It is important to monitor your shares' performance, and to regularly re-evaluate whether they continue to be a good investment for you. You can learn how to do this by completing an Online class or by talking to a broker.
The National Guarantee Fund is available to meet valid claims arising from dealings with stockbrokers in the circumstances set out in the Corporations Act 2001 (Cth) and the Corporations Regulations.
How to buy and sell shares
First you need to set up a client account or trading account before you can start trading. This can take up to a week to finalise but can usually be done in 24 hours.
Once that's done and your account is active...
Placing an order with your adviser
When you place an order to buy or sell shares, you have a choice of two ways to tell your adviser what price you will accept. You can place your order 'at market', meaning you will accept a price at or about the market price of the shares at the time you place your order. Alternatively, you can place your order 'at limit', and inform your adviser of the highest price you are prepared to pay or the lowest price at which you will sell.
When placing an order with your adviser, make sure your order is confirmed. Ask for the current market price and write it down. Then tell your adviser the details of your order (i.e. the amount of shares to be bought or sold and the price at limit or at market). The adviser should then repeat the order back to you.
Generally the contract note for filled orders is immediately sent to you via the fastest contact method you have nominated. If you place an order very near the current market price, it may be filled quickly. If you change your mind about the order after it has already been filled, you are still bound to pay for the shares you have bought, or release the shares you have sold, even if you have not yet received the contract note.
Three days after your order is filled your order will be settled, however you should have funds available by close of business on the day of the filled trade to cover purchases.
All shareholdings are registered electronically on either CHESS or the issuer sponsored sub-register. CHESS (the Clearing House Electronic Sub-register System) is operated by a subsidiary of ASX on behalf of the listed companies. Issuer sponsorship involves the company (or issuer) through which the shares are issued, controlling the shareholding on your behalf.
More detailed information on CHESS is covered in the ASX Starting in the sharemarket class.
If sold shares are held with an issuer sponsored company, you will need to provide your broker with your Security-holder Reference Number (SRN), name the shares are held under, your registered postcode, and the number of shares to sell for the sale to be successfully executed. |
