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What Must You Assess Before You Begin Buying Shares in a Company?
Buying shares in a company may seem like an exotic, foreign concept. Reserved for high-flying New York stockbrokers and executives, popular culture would have us believe it’s a cut-throat, high risk venture that only people from society’s upper echelons are involved in.
However, this couldn’t be further from the truth. With the right knowledge, anyone can buy shares in a company. With the convenience of modern mobile device technology, it’s even easier than it was in the past. If you’re considering dipping your toes in the investment market and purchasing shares in a company, there are several things you should assess before you make a move. Keep reading to find out more.
What exactly is a share?
Before you commit to making any sort of investment, it’s absolutely vital that you educate and inform yourself. Knowledge is power, the better informed you are the easier it’ll be to see financial returns.
What exactly is a share? It’s a term we hear all the time, but many people won’t know the details of what it actually means. Simply put, a share is a small piece of a company that has been listed on the stock market, with shares making up the value of the company. For example, if a company is worth $100m and has 100 million shares, each share would be worth $1.
If you buy a share, then you technically own part of that company. If the company’s value increases, so will the value of your share, which you can then sell to make a profit. Some shares can also pay dividends, which is another way that investors can see returns. Dividends can be paid back to shareholders if the company does well.
However, if a company doesn’t do well or goes bust, shares will be worth less or even worth nothing at all, meaning you will be unable to recoup your initial investment.
Choose an investment platform
To buy shares in a company you’ll have to do so through an investment platform. In recent times, digital investments platforms have been steadily replacing traditional stockbrokers, and have contributed towards the rise in popularity we’ve seen for investments and trading.
These platforms come as websites or apps and offer a wide range of features and offers. There are hundreds of different platforms to choose from, each with their own characteristics and advantages and disadvantages.
When it comes to choosing an investment platform, draw up comparisons between the major ones available to you. Some apps are more suitable for beginners, offering tutorials and even preset portfolios to kick-start your investment career. While some apps don’t charge commission fees, some do, so make sure you check this before proceeding.
One important thing to keep in mind is that some platforms will only allow you to buy shares from certain jurisdictions, while others will let you trade globally. If you already have an idea of the company you want to invest in, make sure your platform of choice lists it as an option.
How to choose a company?
While some people may already know exactly what company they want to invest in, many others don’t. How can you tell which company is a good investment and which isn’t? There isn’t an easy answer to this question. That’s what makes investing so simultaneously risky and rewarding. There are, however, some guidelines you can follow to avoid making any serious investment errors.
Opting to purchase shares in major global brands is often a good investment, they can generally provide stable growth that, while you won’t see significant best returns unless you’re investing heavily, can be a good, encouraging entry point to the market.
If you want to invest in a smaller, less well-known company, research is your most effective tool. Pay attention to the company’s financial reports and statements, these can give you an idea of the overall health and future benefit of the company. Look for positive revenues and balance sheets, avoid companies that report lots of debt. Additionally, pay attention to how that company is represented in the media, both online and in traditional formats like newspapers and TV. Bad publicity can affect a company’s value, which can negatively impact your investment.
If you’re investing in a smaller company, look for ones that offer to pay dividends to shareholders. This opens up new opportunities for you to make a return on your investment. Generally, big companies won’t pay dividends, so this can be a bonus and advantage for taking a risk on a smaller business.
The internet and digital technology have popularized investments, trading, and personal finance. While there is the potential for substantial returns if done correctly, investing is still a risky venture that should not be done without proper research and planning. Make sure you educate yourself on industry terms and language, choose your investing platform carefully, and do extensive and comprehensive research if you’re thinking about start investing money in a small or new company. Follow the steps we’ve laid out for you above and you’ll be investing successfully in no time.