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The basics of investing in shares

Investing in shares is not something that should be done without investigating exactly what's involved. Our guide to the basics of investing in shares aims to give you a basic understanding of what's involved.

Why do people invest in shares?

The short answer to this question is easy: people invest in shares because the stock market has proved to be a very lucrative place to invest in the past. You'll often see quotes suggesting that returns from the stock market out-perform other sources of investment. What this basically means is that some financial analysts believe that investing in stocks and shares is likely to make you more money than various other places that you could choose to place your money (such as in the bank, or in bonds).

You may ask whether all of this is actually true - is it really the case that you'll make more money by investing in shares? This is a tricky question to answer, since there are no guarantees with the stock market. What we do know, however, is that shares have performed extremely well over the long-term. Although share prices have dipped at various points, the long-term trend has generally been upwards.

It's because there are short-term dips, however, that you'll often hear experts suggesting that you only invest in the stock market if you're prepared to make a long term investment.

The concept of shares

The concept of shares is relatively straightforward, although getting to grips with the stock market has proved a lifetime's work for some.

When people use the term share they are actually talking about owning a share of a company. This means that when you buy a share in a company you become the owner of part of that company. You'll usually only own a very small percentage of the company but, as a shareholder, you'll find that you have certain rights.

For instance, you'll receive annual reports from the Directors of the company - these will keep you updated on how well the company is performing. You also have the right to go along to Annual General Meetings of the company. As the name suggests, these are annual meetings where the Directors are present to answer questions on the performance of the business. If the company performs well then you may also receive a small annual payment (known as a dividend).

Information on Shares:
The basics of investing in shares, Different Types of Shares, The Stock Market Explained, What is the FTSE 100?