A share is an investment in a company. It is a share in the fortunes of the company (good or bad). Sometimes called an equity, it is literally a share in the business.
As a shareholder, you will get a share in the profits of the company (sometimes called a dividend). If the business is doing well, the share price may rise, in which case the value of your investment will rise. On the other hand, if the business is not doing so well, the share price will likely fall, meaning a fall in the value of your investment.
The general market view of the sector in which your company operates.
- If the market views the sector negatively, the share price may fall, even if the company is doing fine.
The general market view of the geographical area in which your company operates.
- If your company operates solely in the UK, and the UK outlook is not so good, the share price may fall even if your company is doing fine.
The general market view of the global economy.
- If the market views the outlook for the global economy to be poor (eg 2008 financial crisis), the share price of your company may fall, even if the underlying business is still doing fine.
If you are interested in owning Unilever shares you may want to think about contributing to one of the Unilever Share Schemes – ShareBuy or SHARES. Refer to the Inside.Unilever portal for more information on these share schemes.
If you’re saving for the longer term (generally more than 5 years) then the returns you can achieve on ‘safer’ assets such as cash are unlikely to keep pace with inflation, meaning that, over time the real value of your savings will go down. Investing in shares gives you the potential to earn returns above inflation and maximise your returns in the long term.
Investing some of your money in shares can also provide some diversification away from other asset classes. This means that you’re not so exposed to one asset class performing badly and impacting on the entire value of your savings.
Investing for the long term is important when investing in shares as there are risks involved. Over long periods the stock market has consistently outperformed cash savings, however the value of your savings in shares will go up and down over time and can sometimes be worth less than if you’d invested in cash or put your money on the bedside table. By investing for long periods, you reduce the risk of getting less back than you put in and you give your investments the chance to recover when the value falls.
As mentioned, there are risks associated with investing in shares and you could get back less than you put in. But the following golden rules help reduce some of these risks:
- Drip feed your money in – it can be very difficult to predict when will be a good time to invest in shares. By investing a small amount on a regular basis you can reduce the risk of investing all your money at a time when prices are high.
- Spread your investments – it is very difficult to pick which companies shares will perform well. There are lots of factors at play here and even the professionals often get this wrong. By investing in a range of different companies’ shares you can reduce your exposure to the risk of a single company performing badly. You can invested in a range of different companies shares by investing in a share fund. These allow you to invest a little bit of money in each of the companies in the fund rather than picking a single company. The companies included in the fund will be picked by the fund manager but there are funds out there that are designed to track all the listed companies in the UK, this is known as the FTSE All share fund. You can find more information about share funds here. Investing in this way will help you spread your risk and smooth out some of the significant ups and downs you may experience by investing in a single company’s shares.
- Invest for long periods – your share investments will go up and down over time but by having a long time period you are reducing the chances of getting back less than you put in and you’re also giving your investments time to recover from any falls in value.
- Drip feed your money out – just like it’s difficult to know when to invest money it’s also difficult to know when is a good time to take your money out. You can avoid taking your money out on a day when the value is low by only taking out what you need and leaving the rest of your money invested. This will mean you don’t take all of your money out when prices are low and it also means you can invest your money for as long as possible.
After following these golden rules the risks of share investment are reduced but not completely eliminated. You need to be comfortable with the risks that remain before investing in shares.
How to do it – You can invest in shares directly or via a stocks and shares ISA (see below). For more information on how to invest directly, click here.
Fees – there are costs involved when investing in shares whether you do this directly or via a fund. When deciding to invest in shares you should compare the different fees involved and pick the option that best meets your needs whilst minimising the costs. More on understanding investment fees can be found here.
Stocks and shares ISAs – these offer an easy and tax efficient way to invest in shares. Before you decide to invest in shares directly you should read the section on ‘Stocks and shares ISAs’ to see if this is the best way for you to invest in shares, bearing in mind the tax advantages that are provided by the ISA wrapper.
Unilever Share Schemes – these schemes offer you a convenient way to invest in Unilever shares. There are some significant tax and other incentives on offer here which could mean that you want to take advantage of these share schemes before you invest more widely in shares. You need to bear in mind that, for these schemes, you are investing solely in Unilever shares so you are exposed to how Unilever alone performs. This does make these schemes more risky that share funds but you may be happy to take on the additional risk in light of the incentives available. For more detail on the Unilever Share schemes, click here.