Shares are one of the classic ways for investors to invest their own capital, in some cases very profitably. The difference to other well-known investment possibilities such as time deposits or overnight money is that you do not hand over your money to a bank, but rather invest in a company either directly or via a fund. After buying shares, you become a shareholder in the company in question, which has both advantages and disadvantages. In the following, the investment option of shares is presented in a little more detail in order to bring interested readers a little closer to the investment in shares.
Shares generate dividend payments
Anyone who has become a shareholder in a company, either directly or through an equity fund, can normally expect to receive dividends at the end of a financial year. These are paid out of the net income for the year that the company has generated, whereby the Board of Management proposes the dividend and this must be approved by the Annual General Meeting with a simple majority. As a rule, just under half of the annual profit is retained in the company in order to be able to make investments for the future, although this is not necessarily the case.
Large profits are particularly attractive when the share price rises
However, the greatest profit potential with shares lies in the dividend, but in the possibility of taking price gains with you and selling the share when the price is high. Of course, there is always the risk that prices will fall and that you will even lose capital at the end of the day. For this reason, there are many different investment strategies for shares, whereby particular emphasis is placed on spreading the risk in order to avoid total losses. Which strategy you ultimately follow always depends a little on your own character, because while cautious investors tend to shy away from certain stock transactions, the situation is different for more speculative investor types.
There are many different types of shares
If you intend to buy shares, you should also know something about the different types of shares beforehand, as they do have some differences. The normal shares are referred to as ordinary shares on the shelf, as they are fully taken into account not only for dividends but also for voting rights at the general meeting. In contrast, preference shares are issued without voting rights, but with a higher dividend payout. So if you just want to invest and forego your right to a say, you can confidently buy preference shares. Other distinctions in securities are made, for example, between registered and bearer shares, whereby registered shares are issued to a specific person, while bearer shares belong to the person who currently owns them.
This means that shares remain good investment opportunities but with a high risk. For security-conscious investors, however, shares should not exactly serve as a financial investment. Here, the forms of time deposits or overnight money are more suitable. Further information on these investments can be found under the respective item.