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Share investment asset class
Relative to property, cash and fixed interest investments, shares are a higher risk investment offering potentially higher returns over the longer term. Investing in shares is most useful in achieving capital growth. If you do invest in shares, your investment horizon should be at least five years.
Shares represent a part ownership or share in a company. A business offers shares to the public primarily as a means of raising capital to enlarge the business. These shares can then be bought and sold. The most common, safe and convenient method of trading shares is to buy and sell them through a broker.
Through your shares in the company, you own a proportionate share of that company, based on the total number of shares on offer. You'll share in the success and failure of the company. You'll share in the income of the business through a distribution of its income, made as a dividend payment. Hopefully, you'll also make a capital gain, as the value of the company increases over time, along with the value of your shares.
Some New Zealanders are still suffering from the fateful blow that Black Tuesday, in October 1987. Many lost a lot of money (and, in some cases, the shirt from their backs) and the New Zealand share market has, until recently, by international standards, been a poor performer ever since.
However, the Shape of Money believes that all investors should have a balanced portfolio which includes each of the three investment classes. Potentially a large proportion of your funds should be in New Zealand and overseas share investments.
Why invest in the share market when I might lose my shirt?
There are a number of ways to invest in shares
Unit trusts - active vs passive investments
The following is a summary of the main differences between investing in actively or passively managed unit trusts.
Summary noteThere are advantages to both styles of management:
A useful strategy may be to utilise both styles of management in your portfolio, in order to benefit from the advantages of the two differently styled funds.
Additional information and resources
As with all investments, read as much as you can on the topic.
There are a number of useful books in our Other Resources (Shares) section you could consider buying or borrowing. In addition, most of the books in the savings and investment section include a few chapters on share investments.
There are a variety of useful resources dedicated to share investments at Other Resources (All Things Shares and Equities).
The NZX has a guide How to Invest.