Investing in shares requires money and can be risky. Other types of investments are recommended for the average school leaver or working person who can then work their way up to investing in shares at a later stage. Some people will speculate with shares, they buy and sell them through a broker in order to make a profit over the short term but it is advisable to forget about shares until you have a house and enough other investments to meet all your financial needs and goals.
What Are Shares?
Companies need funds to finance their business operations on an ongoing basis. They either use existing profits (retained earnings) or issue shares to owners or the public. Investors can invest in these shares and become co-owners of the company until they sell their shares to somebody else. Shareholders generally receive share certificates as proof of their shareholdings and the number of shares. Every time a company needs more money to finance its growth or own long-term investment it will issue new shares to the public. Shares are either new shares (issued for the first time) or existing shares (that were sold to somebody else after the initial issue). Shares are traded (bought and sold) in South Africa on the JSE.
You can invest in shares via a stockbroker. If you do not have the knowledge or time, this is the best option. You should give the stockbroker certain powers to make decisions about buying and selling shares on your behalf. A bank may also assist you with investing in shares. It is best to use a full-service broker (one who has a team of researchers and who offers all the necessary services). You may speculate with shares in the short term or make a long-term investment of more than five years. Insurance companies may also invest directly in shares on your behalf. This is accompanied by a guarantee scheme that lowers your risk and is also suitable for older investors interested in investing in shares.