What are Shares?
Shares represent ownership of a particular company, as well as a claim on the company’s assets and earnings. A shareholder of a public company also enjoys dividends from the company’s profits, gets to participate in its share price performance, and has the right to vote at its shareholder meetings. Shares can also be bought or sold on the stock exchange.
How does Investing in Shares Work?
There are two main ways to make money through shares. The first way is to receive dividends from the company’s profits. A dividend is a distribution of a portion of a company’s earnings to its shareholders. Dividends however, are not always paid regularly unlike interest payments from bonds and it can be issued either as cash payments or as additional shares of the stock.
The second way to make money through shares, is to sell the shares for more than what you paid for. When a company revenue and profits grow over time, so does its share prices. Therefore, when the share prices rose above what you have initially paid for, you will be able to make a profit by selling your shares away on exchange.
Straits Times Index (STI): The Straits Times Index (STI) is a key benchmark for the Singapore market that is used to track the performance of the top 30 companies listed on the Singapore Exchange (SGX)
Advantages of Shares
1. Dividend Income
Shareholders can receive dividend payment from the company’s earnings or reserves.
Shares are extremely liquid and can be traded anytime on the stock exchange for cash during trading hours.
Disadvantages of Shares
1. Higher Risk
There’s a larger number of risk associated with shares such as Price Risk and Volatility Risk. Price risk is the risk of share prices falling below purchase price due to macroeconomic or company-specific factors while volatility risk refers to the risk in which the value of a security fluctuates significantly over time.
2. Lower Priority to Receive Compensations
In cases when the company is no longer able to pay its debts and its assets to be liquidated, shareholders will receive compensations only after bond owners.