Important Financial Decisions

Small companies tend to be privately owned while larger ones generally have shares that are traded on stock exchanges. This means that anyone can buy shares in a company.

Although many people don't actively trade in shares, they may indirectly be share owners through their pension find. Pension providers invest in property and bonds, but the bulk of their money tends to be in shares. Thus, the performance of shares is more important than most people think because their prosperity in retirement is dependent on it.

If you do invest directly in shares, there are two possible sources of revenue. If a company is profitable, it will generally pay an annual dividend to shareholders as a distribution of its profits. This may be paid as an interim and final dividend and will be expressed as a set amount per share. The other form of revenue is through growth as the shares appreciate in value. The hope is that a company will expand and prosper and that its shares will increase in value as a result. The price of a share does largely depend on investors' views of the company and what they are prepared to pay. If things go wrong, the value can easily go down.

The uncertainty of share prices does mean you need to select carefully. There is a whole industry of people who will, for a fee, tell you the best shares to buy. You need to be convinced that their knowledge is better than yours before putting any trust in them. If not, the alternative is to conduct your own research. Scour the internet, read the financial pages of the newspapers and try to spot the trends. In the end, it might come down to sentiment and you might just buy a share because you like the look of it.

Whatever you do, don't invest more than you can afford to lose because there is a real danger that you will lose it. A good pick can give spectacular gains but the opposite also applies.

You will need a broker to buy and sell shares for you and you'll have to pay commission on each trade and stamp duty on every purchase. And nowadays, you don't often get a paper share certificate because everything's recorded electronically.