Over the long term, shares have been the asset class that have consistently topped returns in many studies. They tend to outperform bonds, cash, and property.
Shares certainly aren't without risk and their price can go down as well as up. Over a long term investment horizon though they are capable of providing good returns.
A share in a company is meant to provide one of two forms of return:
- capital growth where the share price increases over time
- and/or dividend income where you are paid a dividend for owning the share
Dividends are paid by companies who have surplus profits over and above those used to operate and invest in the business. They are usually paid every 6 months. In most cases the more profitable a company is the higher the level of dividend paid.
Some investors only buy shares to receive the dividend income. Since dividends are paid out twice a year this provides the investor with a regular form of income. Companies that pay high levels of dividend +5% usually are called income shares.
Some companies do not pay a dividend, preferring to re-invest profits into their businesses. Often these are younger companies keen to grow and benefit from the heavy level of investment they are making. If these growth companies succeed their share price should increase substantially.
A financial advisor can help and assist you with any share investment plans you might have and draw up a strategy specifically tailored to your needs.