Shares, stock or equity, mean the same thing. It refers to a little part in the ownership of a company/firm concern. Shares are of two types, viz, the ordinary shares and the preference shares.
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Advantages of investing in shares
There are some benefits derived from investment in shares. Below are some of them:
The inflation rate is greater than commercial banks interest rate but cheaper than equity price appreciation.
You are guarded against the eyes of the public. Nobody knows your worth except you tell him/her. In other investments, people can quickly look at the assets of the business or your property (real estate) and come up with an approximate worth of it.
The rate of growth is far beyond the bank interest rate.
Dividend: This is cash bonus given to shareholders as part of the profit made by the firm at the end of the financial year. The larger the units of your shareholding, more money you receive at the end of each financial year.
Bonus issues: This is free shares granted to existing shareholders of a company. Sometimes, the company declares bonus instead of dividend or both.
Capital appreciation: Price of shares or stock move up or down responding to the forces of demand and supply.
Disadvantages of investing in shares
The advantages of investing in share are many, but there are few pitfalls to avoid. These include:
Crash in stock prices: Due to one reason or some other, sometimes share prices drop drastically. A discerning investor must know what to do at any point in time.
Sometimes firms go into liquidation thereby eroding the investments of ordinary shareholders. You must be careful to watch over your investment if you consider it important to you.
Fraudulent stock brokers: some stock brokers are unfaithful to their clients. They may collect your money when there is perceived information that the shares of a particular company are a good one and instead of making the transactions in your name may divert the money for their selfish interest, may use it to make their investments. When the company has closed her book, they may call you for a refund or may rob your money like that. You must be careful in choosing your stockbroker.
