You might have considered investing in the share market but feel you don’t know enough about it to dive in and get started. Let’s review some of the basics you might want to know if you’re keen to explore investing in shares.

What’s a share?

When you buy shares, you own a tiny sliver of a company. For example, it might cost you around NZ$370 (as at 19 October) to buy one Apple share, and you’re banking on the belief that Apple will do well, and that the share price will increase over time. In this case, you’re hoping your NZ$370 investment increases in value as Apple grows. Share prices are a function of supply and demand. The more demand for a share, the higher it drives the price and vice versa. When a share trades hands between a buyer and a seller, the purchase price of this share becomes its new market price, and when a second share is sold, that price becomes its latest market price.

What’s the share market?

The share market is a marketplace where people buy and sell shares of public companies. I’m sure you’ve heard of the New Zealand Stock Exchange (NZX) and there is the New York Stock Exchange (NYSE), and the Nasdaq too.

How to make money

There are two ways to potentially make money from owning shares. The first is through dividends. If a company you’ve invested in performs well and creates profits, they may choose to pay you some of those profits in the way of a dividend. The second way to make money is by selling your shares. If you decide it’s the right time to sell, your profits are whatever the price difference is from when you first purchased those shares to the sale price.

Play the long game

Historically, shares have been one of the better long-term financial investments, but they are also one of the higher risk ones. What goes up can come down, sometimes rapidly. Share prices tend to fluctuate, so they come with higher risk. If you’re willing to play the long game of say, 10 years or longer, they have the potential to give you favourable returns. Exchange-traded funds (ETFs) may be an excellent place to start if you are new to investing. ETFs allow investors to buy a bundle of company shares through a single purchase without needing the expertise required to pick individual shares. ETFs that track market indexes like the S&P 500 offer everyday investors the benefit of diverse holdings in the largest 500 companies listed on stock exchanges in the US.

Learn by doing

Researching shares can be intimidating when you’re new to the process, but it’s not as scary as it may seem. Many investors look to consumer-friendly sites, books, magazines, or podcasts for insights on investing. You can also start by searching out news coverage on a company. Analysts tend to cover company report cards known as ‘earnings reports’. These detail what’s going on with the company, its finances, and if it’s growing or not. Take note of how the share price responds over time. You’ll soon learn how news of the economy, industries and companies can affect a share price and it can help you have a stronger investing game.

How to get started

When you’re ready to get going, you could approach a broker or use an online brokerage account, transfer money into it, and place an order. The broker automatically matches your buy order with someone else’s sell order and boom! You own shares. You don’t have to spend thousands to start investing. Many online platforms allow you to begin with just a small amount, so you can build your confidence as you go.

Published 25 February 2020

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.