Factsheet: Shares

Also known as stocks and equities, shares are divided-up units of the value of a company. When you buy a share you buy a stake in the company, and co-own it along with all the other shareholders.

In theory, if a company is worth £100m, and it issues 50m shares, each share is worth £2 (usually listed as 200p). However, in practice shares are traded and the prices paid are based on sentiment - what buyers and sellers think the company is worth at any time. As a result, the value of a share can, and does, go up and down.

Stockmarket and shares Buying and selling shares at the right time can result in capital growth. Photograph: AP

There are two ways to make money on shares: one is through capital growth - you buy the shares, then sell them on at a higher price than you paid for them.

This is not as easy as it sounds, as shock events in a company or in the stock market can cause a share price to plummet as investors try to offload their shares.

The second way you can make money from shares is through the dividend.


When a company makes a profit it will usually reinvest some of the money, and pay some of it to shareholders in the form of a dividend. Dividends are usually paid twice a year - at the time of a company's interim and final annual reports - but when you buy a share there is no guarantee it will earn a dividend.

Dividends are subject to tax. If your overall taxable income falls in the basic rate band you will be taxed at 10%; if it falls in the higher-rate band you will be taxed at 32.5%. Dividends paid on shares held in an Isa are taxed at 10%, regardless of how much tax you normally pay.

Buying shares

Shares are available when companies float on the stock market - known as an initial public offering – and if you buy them from other shareholders.

Share prices quoted in newspapers only give you an idea of how much a share is worth - they are the average of the buying and selling prices at the end of the previous day. You will get more up-to-date information online, but again the price you are offered when you go to buy or sell a share will probably be different.

Rather than buying individual shares most investors begin by buying funds, which hold a range of shares, sometimes alongside other types of asset. This is a good way to spread your risk over a wider range of shares than you would be able to invest in on your own. Also, the fund manager will be dedicating his or her day to picking the best shares, which should mean better results.

Buy and sell shares You can instruct a broker to buy and sell shares for you. Photograph: H.Prinz/Corbis

If you do want to put together your own portfolio of shares you will need to get in touch with a stockbroker, either directly or through your financial adviser.

Stockbrokers offer three types of service:

Execution only - the broker buys or sells shares according to your instructions and does not provide advice. This type of service is the cheapest; it is available online and by phone, as well as from traditional stockbrokers.

Advisory - the broker helps you put together a portfolio of shares and then advises you on what to buy or sell. You decide whether or not to take that advice. As well as calls from the broker, you will probably receive regular newsletters telling you about stock market trends.

Discretionary - you give the broker authority to buy and sell shares on your behalf without asking for approval. Before he or she starts to do this for you, you will discuss your investment objectives and come up with a framework for your broker to use when deciding which shares to buy. This is the most expensive level of service.

As well as paying the stockbroker for any advice, you will also need to pay dealing costs.

When you buy shares you will also pay a stamp duty charge, equal to 0.5% of the value of the transaction.

Market sentiment

In general, share prices rise on the expectation (rather than the publication) of increased future profits, and fall on published facts. This may sound strange, but if an analyst predicts that ABC company will double its profits then the price will rise at the time of the prediction.

However, when the results come through and reveal that profits have gone up "only 75%", the price will probably fall because the current facts are less exciting than the earlier prediction.

Successful investors usually spend a lot of time researching companies before and after they invest in them in an attempt to work out what will happen to share prices.

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