Stocks and Shares

And other exciting things.

Actually, not really any other exciting things, I just appreciate that stocks and shares don’t sound that exciting. Although, if you’re looking to create a financially joyful, easeful and stable life then you’re almost certainly going to have to incorporate stocks and shares whether you invest directly or through funds.

The reason is that stocks and shares tend to beat other investments over the long run - so your money is growing in the most efficient way it can. That’s not to say they will of course, all investments come with risk (and stocks and shares are classed a relatively high risk) and there is the potential to lose all of your money.

But what we’re not gonna do because of that, is turn away right now and keep putting our money into a 3% savings account at the local building society. Because as there are risks, well, there are ways of mitigating those and we can look it all in the eyeballs to work out what’s best for us.

So. From the beginning.

A share is a small piece of a company that you can buy and own.

Publicly limited companies have shares which are traded on stock exchanges like the London Stock Exchange. They’re generally bigger companies and they offer shares out for sale as a way of making money - initially anyway. Once the shares have been bought from them in the initial public offering (IPO), they’re out in the market like Matilda’s ships on the sea, so the sales have nothing to do with the company itself.

However the share price, as I’m sure you know, has a bearing on how people think and talk about the company and they could also buy the shares back so then it is their business.

There are also privately limited companies, generally much smaller, you might be able to buy shares in one but it’s a private affair, think small family-owned businesses here (though it doesn’t have to be that small!).

A stock is a more general term that refers to ownership of shares in one or more companies. They’re used interchangeably for the most part so don’t overthink it.

How Do I Make Money With Shares?

1). Capital Growth.
Which means that the value of the shares might go up and then you can sell them for more than what you paid.

2). Dividends.
If the company is doing well it might pay a portion of its profits out to the shareholders.

If a company isn’t doing well then you’re not likely to get a dividend and the value of the share might also go down. Potentially all the way to 0. Which is why we don’t put all of our money into buying shares from a single company. Even if some TikTok influencer tells us it’s a sure thing…

But it won’t go less than 0. So even if a company goes bust you won’t owe any more to the company or the creditors. The potential for gain is unlimited but the potential for loss is limited.

Assessing Shares

If you buy individual shares you’ll want to know about the companies you’re investing in. Their profit margins, plans, market share etc. which is all public information for publicly traded shares. You can find it on their websites, on the stock exchange website or on amalgamation websites. Old fashioned print media like the Financial Times are good for this stuff too.

There’s a lot to know and understand though, and a lot of clever people fandangling things for various aims and reasons. For example ‘research and development’ costs can be a cost to the company which reduces their profits or it can be placed as an asset so it’s not reducing the profit. In that way they can, perfectly legally and with good reason, manipulate how their figures look. If you’re putting any serious money here you want to be very sure you know what you’re doing.

Having said that, I’m a fan of dipping a toe in if it excites you. I went out of my way to buy a single share in Etsy quite some years ago, it lost basically half its value in a week and it’s only got worse since. But it cost me like £120 and it soothed some curiosity - as in, I don’t have much now I know I’m a shit stock picker. Haha.

It’s a good job I didn’t put all my savings into this hey?

Otherwise you could use a financial advisor or a stock broker who have specialist knowledge in how to pick the shares (or a range of shares) which meet your goals.

Or you could look into funds, where you buy a portion in a collection of investments. They’re set up in lots of different ways, and we’ll discover more over time, but the aim of the game here is generally diversification which is how you mitigate against the risk of one company going bust - you invest a little into lots of different companies so if one goes ‘poof’ then you still have money left.

I could go on and on and on here but this blog is for the long term. I want to give you enough info to get your teeth into and get curious without being overwhelming. Let me know if you’ve learned something here.

Love Eleanor. xxx