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What is a share?
Think of the biggest company in the world. Chances are you said Apple, Amazon, Tesla, or another major company. These companies are all public listed companies. That may sound complicated, but all you have to worry about for now is that these companies have shares that can be owned by anyone. A share is a portion of ownership in a company that can be purchased on an exchange (for example in Australia the ASX).
However, before you get too excited about owning Apple, there are roughly 16.41B outstanding shares in that company alone. So, purchasing 1 share at the current price ($174 USD) would mean you own 1/16 410 000 000 of the company.
How do you buy them?
Shares can be bought through a stockbroker. A stockbroker is a financial professional who executes orders in the market on behalf of clients. Brokerage accounts are provided by many different entities, some of the most popular are CommSec, Nabtrade and many different organisations have their own brokerage accounts available. Make sure to do your own research before you set up an account as each account has different fees, minimum purchases, and other terms.
How to make money from shares
Now that you understand what a share is and how to purchase one, you may wonder, how do I make money from them? There are two ways you can make money from shares, dividends, and capital gains.
A dividend is a company paying shareholders a sum of money, this usually occurs 3 times a year, but can vary on the company. Some companies don’t even give dividends. These dividends are given to shareholders, and the amount the shareholder receives is directly proportionate to the amount of shares that shareholder has.
Capital gains refers to the stock itself increasing value. When you purchase a share, you will purchase it at a particular price (for example $5), capital gains are made when that share price increases to more than what you paid for (for example from the original $5 to $10).
Due to dividends being roughly 2-5% (meaning 2-5% of the total investment in that share), most money made through the share market is made through capital gains. And that’s the basics of stocks! It is simply a small proportion of a business that is bought through a stockbroker and can allow you to make money through capital gains or through dividends.