Understanding returns
Share can be highly volatile, but you can earn returns by dividends and capital gains. There are two ways you can make money:
- Dividends - These are payments made to shareholders as a way of sharing profits
- Capital gains - This is the money you make if you sell your shares for a higher price than you paid.
Shares go up and down in value a lot.This is normal – shares are volatile. You can view the value of New Zealand listed shares on theNZX website.
Understanding the risks
Companies with shares listed on a licensed financial product market like the exchange run byNZX Limitedhave to comply with the rules of the exchange.
Information varies depending on the type of shares
Only some types of shares offers will have a Product Disclosure Statement (PDS). Share this! explains the difference between buying shares on primary and secondary markets and the different levels of disclosure that apply to these markets.
Initial Public Offer (IPO)
This is the process of publicly offering shares to investors and listing on the share market. An IPO (also called a float or listing) may involve theissue of new shares to raise more capital for the company or the sale of shares previously owned by other shareholders.
Unlisted shares may be hard to sell
Unlisted shares aren’t on an exchange and there may not be an established market for their sales.
The value of your shares might fall
The company you’ve invested in could perform poorly or fail. The share price could stay weak for a long time if the company consistently disappoints investors. Dividends may also fall if profits fall, or the company decides to keep more of its profits to reinvest in the business.
Your shareholding may be reduced
This can happen when the company you’ve invested in offers to sell you new shares to raise money, but you don’t take up the offer. It can also happen when the company raises capital using complex investments that can cause your initial investment to be sharply reduced if you don’t know what to do with them.
Understanding costs
The fees charged will vary depending on the type of share buying service you choose. You will pay a minimum brokerage fee for each order placed and may have to pay a percentage fee for any amount over the minimum.
