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Apr 04

What is a share? Here’s why you should care

Reading Time: 5 mins

I’m sure that as you were growing up, the word ‘share’ was drummed into you continuously. So, you’d be forgiven for asking ‘what on earth does sharing have to do with investing!?’.

Well, it’s not sharing per se, but shares do play an important role for UK investors. To help make sure we’re all on the same page, I’m going to explain everything you need to know about shares.

Keep reading for all the essential info or click on a link below to jump to a specific section…

What is a share?

In the world of investing, a share simply refers to a piece of ownership in a company.

This is because for every company, there will be a set amount of pieces (shares).

As an investor, you can buy one share or multiple shares. Therefore owning a fraction of that company and becoming a ‘shareholder’.

The more shares you own, the more of that company you own. Simple stuff see!

Although you can sometimes buy shares in private companies, you’re most likely to only own shares in public companies. This is because these are the shares being bought and sold on stock exchanges like the London Stock Exchange (LSE). But, more on that later.

Where your shares are kept

In the olden days of cobbled streets and penny-farthings, these shares were physical pieces of paper. You could stuff them in your suitcase and walk around town chuffed to bits about how many companies you part-owned.

You might have even filled up a dry bathtub with your paper shares and spent evenings basking in your fortune à la Scrooge McDuck.

Bathtubs and Ducks aside, you can still get share certificates. But, the majority of company ownership is now recorded digitally.

This means that the number of shares (pieces of a company) you own can be stored as a digital record on the computer, or even on your smartphone!

smiling man holding smartphone

What is the difference between stocks and shares?

The main difference is that ‘stock’ refers to broad ownership of a business. Whereas a ‘share’ is an individual unit of ownership.

These words can make things seem confusing. Because people often intermingle the use of ‘stocks’ and ‘shares’.

In the UK, we also tend to refer to US-based companies as ‘stocks’. But generally speaking, ‘stocks’ refers to whole businesses and ‘shares’ to pieces of a business.

child leaning on counter with question mark sticky yellow note on forehead

How do shares make money?

It’s not actually the shares themselves that make money, it’s the underlying company that you own when you hold shares.

So, when you make the exciting step of buying some shares, if that company performs well and makes money – the price of your shares can go up.

The price of your shares might also go up simply because there’s more demand for them. Imagine that your share is like a ticket to a sold-out Adele concert. For people who don’t have tickets to the gig, they might offer more than what you paid. Then, you have the option to sell your ticket (your share) for a higher price. Or, hold on to it until someone bids even more for it.

But, what makes investing more exciting than a concert is that the stock market is never-ending! So, there’s no time limits involved and you can hold your shares for as long as you live if you like.

And, if the company or fund you own shares in performs well – those shares will gradually become worth more and more over the years. Because everyone wants a front row seat to financial freedom!

Why do UK investors need to know about shares?

You need to know about shares because these are your tickets to financial freedom.

Here’s two solid reasons why you should consider buying shares:

  1. Each one has the potential to be your very own Golden Ticket from Willy Wonka. And, even better – there’s no industrious, singing Oompa-Loompa’s…or any danger of children drowning in chocolate rivers!
  2. Investing (buying shares in companies and funds) is the ultimate way for ordinary people like you and me to become wealthy.

This is because over the long-term, savvy investments can grow in value – increasing your wealth over time.

Becoming an investor and owning shares, is like taking a shortcut. Instead of taking the stairs, you’re putting yourself in the Great Glass Elevator to a wealthy destination! No more Roald Dahl references, I promise.

Man in chequered shirt reading Roald Dahl red hardback book

If you follow some simple strategies, and invest small amounts throughout your lifetime, you can create a massive fortune. You don’t need rich parents, you don’t need a huge salary, and you don’t need a well-off other half (although that always helps!).

But, the point is – owning shares (and therefore owning companies) can be your route to financial independence.

You don’t need to be obsessive about money and markets either. You just need to understand the basic concept that becoming a business owner (without having to actually run a business) is an amazing way to create a better future for yourself.

How do you buy shares?

Gone are the days where you’d have to be located near a stock exchange in London or New York to buy shares.

Nowadays, you don’t even have to pick up the phone and scream ‘BUY, BUY, BUY!’. Well, you can still pick up your smartphone and buy shares, but by clicking a few buttons instead. Much more civil right?

You still need to have an account with a brokerage. A brokerage is a platform that allows you to buy or sell shares. They provide you access to major stock exchanges such as the London Stock Exchange (LSE) or the New York Stock Exchange (NYSE).

Luckily for you, these services are cheaper and easier than ever to use. Most will let you create a basic account for free. And, some platforms like eToro will even let you buy or sell shares for free!

Here at MoneyMagpie we’ve got plenty of resources to help you on your share-buying journey. Take a look at this guide if you’d like to know more about how to buy shares.

What to do once you own shares

Buying shares to invest in a company (and therefore own a piece of that business) is something that everybody can and should do. Yep, that’s right. Not just you.

Once you’ve wrapped your head around how simple it can be to become an investor, it’s your responsibility-nay, your duty-to make sure you share (no pun intended) your new knowledge with your friends and loved ones.

There’s no point becoming wealthy whilst everyone you care about is still stuck in the rat race!

So, share the love AND the wealth. Create lasting piles of money for yourself and for others with your new understanding of what it means to buy shares and become an investor.

Lastly…make sure you sign up to our fantastic Investing Newsletter for a fortnightly round-up of all the investment info that you need to know about, packaged up in one simple and tidy email.

This is not financial or investment advice. Remember to do your own research and speak to a professional advisor before parting with any money.

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