The Why and How-to of investing in the Stock Market

The global economic downturn has negatively affected stock markets worldwide, most notably the Wall Street stock exchange, which has reached a 12 year low. According to a report on Engineering News Online, “Wall Street shares tumbled after investors lost faith that the US government will be able to stabilise the financial system”.

However, this does not mean that you should give up investing in the stock market altogether. Despite plummeting share prices, it is still possible to invest in shares. All you need to do is better educate yourself on the risks involved, and how and where to invest.

The assumption that only the wealthy can invest in the stock market needs to be debunked, as in fact, you may unwittingly already have invested in shares, for example unit trusts, life assurance policies and retirement annuities. If you have over R5000 to invest, it is possible to increase your wealth through buying shares in the local stock market, namely the Johannesburg Securities Exchange (JSE Limited).

Shares are issued by companies in order to raise capital, and these companies can be listed on Securities Exchange. Companies that are listed are compelled to meet certain requirements, and have their accounts audited and financial history examined. Therefore, investing in a listed company guarantees a greater degree of protection, as transparency is essential for JSE listed companies.

Shares that are bought in certain companies are then traded in the stock market. Depending on supply and demand, the fluctuating prices of shares determines their potential value. Shareholders are then given a share of any profit made by the listed company, which are known as dividends. These dividends are usually paid to shareholders quarterly, annually or bi-annually.

The more profit a listed company makes, the higher the value of the shares - which leads to an increase in the share price. Additional profit can also be made by selling your shares when they are worth more than when you bought them. However, as the current global economic downturn demonstrates, share value plummets when companies cease to make a profit.

If you buy shares in a listed company, you become a shareholder. Shareholders are kept up to speed with developments in the financial standing of company, and shareholders meet regularly to vote on important company issues, such as the appointment of company directors and the company’s future.

Despite the global economic gloom, the truth is that investing in the stock market is risky either way, and there is never any guarantee that you will make money by investing in shares. However, if you are patient, investing in shares can provide you with adequate return in the long term. It is also important to only invest money in the stock market if you can genuinely afford to do so.

If you are looking to make small investments in the stock market, with the help of a qualified consultant, visit www.bassettoinvestments.co.za. This specialized financial services company can provide personalized assistance with small investments, as Bassetto Investments offers “… the chance to invest small amounts, while yielding high returns.”

Source:

Du Preez, L. (2004) “All about investing in the share market” Available at: persfin.co.za [Accessed 8 March 2009]

Reuters (2009) “Oil extends losses after Wall St plumbs 12-year low” Available at: engineeringnews.co.za [Accessed 8 March 2009]