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A share is a stake in a company

When you buy a share you, quite literally, buy a share of a business. No matter how huge the company, owning one share makes you one of the owners of that company.

Shares are often called ‘equity’ as they represent the value of a company divided into equal parts. In theory, if a company was wound up and all its interests and property were sold off then the shareholders would all get a share of the outcome, based on how many shares they hold.

Shareholders are also entitled to a share of the company profits. These are regularly paid through a payment known as a 'dividend'. This is one of the most important benefits of owning a share – in the long term, dividend payments could make a big difference to your return.

However, owning a share also means sharing the risk of a company no doing well. If a company fails to succeed, then there will be no profits, and its shares are likely to fall in value and could even become worthless.

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Investing in shares can be rewarding but involves risk

If you are thinking about investing in shares, then it’s important to understand some of the risks that come with it.

Share prices can go up and down unpredictably

Investors call this ‘volatility’. At any one time it can be hard to predict how much your investments might be worth in the future. Even if you are confident that your investments will grow in value, it can be difficult to say what its precise value may be at any one time, even for experts.

There is no guarantee that a company will be successful

While many companies are successful, many fail even if they look good on paper and investors lose out. This can also afflict specific sectors – for example, where all investors suddenly lose faith in oil companies or banks – or across the entire share market when people think the economy is going to do badly. Sometimes this can be a matter of holding your nerve and waiting until markets recover. At other times investors need to accept a loss and move on before they lose even more.

Share prices are set by buyers and sellers

Share prices can be found on the internet, through apps on your phone or published every day in many newspapers. They are also an important part of investing: buying a share when the price is low and selling when the price is high is one of the main ways that investors hope to make money. For this reason, it's very important to understand what a share price represents.

The share price you see quoted is the last price that an investor paid for a share. This is a very important point: a share price is not like a price in a shop. It’s simply the value that two investors agree upon at any one time.

Investors will pay more for a company they think is going to do well

Share prices tend to be driven by basic supply and demand. If demand for a particular stock outweighs supply, its price will go up; on the other hand, if there are more sellers than buyers, then prices will fall.

Demand for a share can rise when investors think that a company’s fortunes are improving. For example, the company has launched a new product, is being bought up by another company, or the economic backdrop has changed to favour its product or service. 

Similarly, bad news can see demand for shares fall. For example, if a company suffers an unsuccessful product launch or fails to meet its sales targets.

Spreading your investments across different companies could help to reduce overall risk

You can’t completely avoid these types of risk, but many investors spread their money across lots of different shares, only risking a small amount of their savings on any single company.

One of the more efficient ways of doing this is by investing in an equity fund. When you invest in a fund you pool your money with other investors and a professional fund manager then invests this collective sum into a wide variety of shares.


Investing in shares is a long-term project

It is important to see investing as a long-term commitment. Generally speaking, the quality of a company’s business has historically been the main contributor to share price movements. Companies with good products that are well run and able to adapt to changing times are the ones that have done well.

In the short term, share prices can rise and fall based on incomplete information, bad publicity or anxiety caused by things beyond a company’s control. Short-term unpredictably like this can be unnerving but it’s important to see investing in terms of years rather than weeks or months, let alone day-to-day moves in share prices. 

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    This marketing communication does not constitute on the part of AXA Investment Managers a solicitation or investment, legal or tax advice. This material does not contain sufficient information to support an investment decision.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ

    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Risk Warning

    The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.