Education / Share market / Benefits of investing in shares

First, let's consider the material aspects of share trading or investing in shares.

There are two ways an investor can benefit from buying shares. The first way is through the growth of the company. If a certain company is able to improve its profits, demand for its shares will grow and the share price will rise. This type of company, known as a growth stock, is popular with investors who do not need income from their investments.

Many companies also pay a dividend. Shares provide dividends are known as 'income' stocks. Companies can return money to shareholders in other ways too such as buying back their shares. This increases the value of those shares still in circulation.

The fact economies spend longer in a growth period than in recession has helped shares produce better returns than other assets and, crucially, beat the effects of inflation.

Besides these countable advantages, there several more particular features of shares. Many people know the saying "don't put all your eggs in one basket". That's about diversification. By investing in a range of companies you can spread your risk.

Shares can be bought and sold quickly. You can sell shares and generally have access to your money in no more than some days. Other investments often take longer to sell and get money back. This concept is known as liquidity. Some shares can be traded quicker than others due to their increased liquidity. Liquid investments have the benefit of greater flexibility.