Investing in shares and stocks isn’t as complicated as you might think.Shareholding can increase your income through the regular payment of dividends and shares can be used as collateral when borrowing or applying for a loan. The level of rights you have as a shareholder depends on the amount of shares you hold and whether they are ordinary or preference shares.Ordinary shares provide the highest potential for good returns, but they are the highest risk and if the company were to go bust,as an ordinary shareholder you wouldn’t get a penny.
Preference shares confer the right to receive a dividend payment preferentially before other shareholders. However, that degree of security is possible only because the value of a preference share is fixed, which means that should the company increase in value you won’t get any benefit and you don’t have any voting rights. If you buy shares online, you can minimise any risk by choosing shares in a number of industry sectors and across different countries, but as with any investment plan, you do risk losing that investment if the share price falls.Share dealing is not a marginal transaction (unlike spread betting for example) and any profits will attract capital gains tax and stamp duty as well as having income tax implications.
Share dealing is therefore best for long-term investment of at least around five years.If you’re looking for shorter term returns then CFDs or financial spread betting may suit better. However, if you are not easily spooked by short-term market volatility, share dealing can demonstrate significant long term returns. Remember though that for every winner there is a loser, so part of a sensible strategy is to minimise possible losses. That can be done by setting a “limit order “on the price at which you buy or sell shares or instigating a “stop loss” order which triggers an automatic sale if the share price drops below a specified level.The real satisfaction from share dealing may come from the knowledge that your investment is helping a real company to provide jobs in the real economy as well as delivering you dividends.
