Why invest in shares?
There are many reasons to invest in shares in a public limited company. Here are three common reasons:
1. Invest to make money
The most common reason for investing in shares is to earn money. Behind an investment is an expectation of a better return than what the bank can give you in the short or long term.
Shareholders* can earn money in two ways:
- by receiving an annual dividend if, or when, the company does well;
- by re-selling their shares for more than they bought them for.
A company that is well run will often create value which over time exceeds risk-free interest (bank interest). If the value of the company increases, the shares will normally also increase in value.
As a shareholder, you make a return from the increase in value when you sell the shares. During the ownership period you may also receive a return if the company has a dividend policy, which is when a company distributes parts of its profits to its shareholders, usually on an annual basis.
2. Invest to influence
Some people invest in a company to impact how the company is run. For example, a mutual fund might buy shares in a company to influence the company to move towards more sustainable and socially responsible operations.
3. Invest to help
Some people buy shares in a company to help a friend or a family member create their own workplace, or to expand/save their business.
*shareholder = owner of shares of the company.
