Investing in shares is one of the most accessible ways for individuals and businesses to participate in financial markets, allowing investors to buy and sell shares of publicly listed companies as part of the investment process and build wealth over time. But what exactly happens when you buy shares, and what should investors consider before they start investing? This guide breaks down the fundamentals of share investing, explains the risks and rewards, and highlights key considerations for financial planning.These decisions are typically guided by a broader investment framework — you can learn more about how investment strategies are structured in practice.
Quick Answer: What “Investing in Shares” Actually Means
Investing in shares means buying small ownership stakes in real companies, usually via a stock exchange such as the Australian Securities Exchange (ASX), with the aim of long-term capital growth and income from dividends, which are paid from a company’s profits. Each share you purchase represents a fraction of equity in a public company, making you a shareholder with a claim on part of the company’s profits and assets.
When an investor buys shares, they become a shareholder whose returns depend on company performance, dividend payments, and future share price changes. As a shareholder, you share ownership with other shareholders, each owning a portion of the particular company and potentially having rights such as voting and receiving dividends. For example, if a company is divided into 10,000 shares and you buy 100, you own 1% of that company.
For example, investing AUD 100,000 in shares of an ASX-listed mining company could potentially receive dividends yielding 5-6% annually, plus any capital gain if the share value rises over time.
This article covers how shares work, risks versus rewards, how to get started, and key financial planning considerations.
How Shares Work: Ownership, Markets and Basic Mechanics
A share, stock or equity represents a unit of ownership in a company. These terms are often used interchangeably in Australia. When you buy shares, you’re purchasing a stake representing ownership in that business.
Companies issue shares to raise money (equity capital) from investors, typically when listing on the Australian Securities Exchange or another market. This equity capital helps companies expand their business, develop new products, or pay off debt. For instance, Atlassian raised AUD 462 million when it listed, allowing other investors to own portions of the business and fund its expansion.
Share ownership gives you specific rights:
Voting rights on key decisions at annual general meetings (board members elections, mergers)
Eligibility to receive dividend payments if the company declares them
Residual claim on assets if the company is wound up after creditors are paid
Share prices move day-to-day based on supply and demand, investor sentiment, economic conditions and company-specific news. Earnings announcements, mergers, or enforcement actions can cause the market price to shift significantly.
Publicly listed companies trade shares on regulated exchanges like the ASX (handling approximately 99% of Australian equity volume) and Cboe Australia. These exchanges allow investors to trade shares by buying and selling actual ownership stakes in companies, often using a share trading platform. The New York Stock Exchange and London Stock Exchange serve similar functions for international shares. Private company shares trade off-market under private agreements, often with limited liquidity.
Institutional investors such as super funds and managed funds, alongside retail investors, all participate in these markets under rules monitored by regulators.
Types of Shares and What They Mean for Investors
Not all shares carry identical rights. A company’s constitution sets out the specific entitlements attached to each class.
Ordinary shares (common stock):
Typically carry voting rights
Eligible for variable dividends tied to the company’s profits
Residual claim on assets in liquidation
Represent over 95% of ASX share issuances
Preference shares (preferred stock):
Often pay fixed or priority dividends
Rank ahead of ordinary shares in a wind-up
May have limited or no voting rights
Less common on the ASX
Other variations exist in practice, including non-voting shares, employee share schemes, and performance rights. These can impact control and dilution for existing shareholders and common stockholders alike.
Investors should obtain legal and tax advice to understand rights, obligations and any implications, particularly around beneficial ownership transparency.
Why People and Businesses Invest in Shares
People and businesses pursue share investing for two primary goals: capital growth over time and income from dividends. Some corporate investors also hold strategic stakes in suppliers or partners.
Historically, shares have outperformed other asset classes like bonds and property over the long term.
Investors often combine shares with other assets such as bonds, funds, or property to diversify their investment portfolio and manage risk. This approach is central to managing risk — particularly when considering how global diversification supports long-term investment outcomes.
Capital Growth
If a company expands and becomes more profitable, investors may benefit from a higher price over several years. Consider this example: AUD 10,000 invested in CSL shares in 2015 at AUD 80 per share grew to approximately AUD 25,000 by 2025 at AUD 250 per share—a 150% gain driven by the biotech company’s expansion.
Historical ASX 200 total returns have averaged 9.1% annually since 1980, outpacing inflation significantly. However, past performance is not a reliable indicator of future performance.
Dividends
Profitable companies may pay regular cash dividends to shareholders. In Australia, many companies pay interim and final dividends twice yearly. Dividend reinvestment plans (DRPs) allow shareholders to automatically reinvest dividend payments into additional shares, compounding returns over time. Investors often weigh this against growth-focused strategies — particularly when considering dividend versus growth investing for long-term wealth.
Diversification
Holding a share portfolio across different companies, sectors (financials, healthcare, technology) and countries spreads risk. An exchange traded fund tracking the ASX 200 provides instant diversification across multiple companies without selecting individual stocks.
Common reasons investors invest in shares include:
Managing surplus cash productively
Taking strategic holdings in suppliers or partners
Gaining exposure to sectors they don’t directly operate in
Investing vs Trading: Different Approaches to Shares
It’s important to distinguish long-term investing from short-term share trading.
Aspect | Investing | Trading |
|---|---|---|
Timeframe | Years (5-10+) | Days to months |
Focus | Company fundamentals, governance | Technical analysis, market moves |
Activity | Buy and hold | Frequent buy and sell shares |
Costs | Lower (fewer transactions) | Higher (brokerage fee per trade) |
Investing involves buying shares with the intention of holding for years, focusing on fundamentals like earnings growth and governance quality rather than short-term price movements.
Trading involves frequently buying and selling shares to profit from short-term changes, often using technical analysis. When you trade shares, you can set different types of buy and sell orders, such as limit orders and market orders, depending on your strategy and risk tolerance. Studies indicate approximately 80% of day traders lose money.
Most investors align better with an investing mindset—linking investment decisions to strategy, risk appetite and financial planning frameworks rather than speculative trading.
Risks of Investing in Shares (and How to Manage Them)
Shares can fall as well as rise, and investors can lose some or all of the capital they invest. When the share price falls, you may experience a capital loss. Understanding these risks is essential before you start investing.
Market risk: Broad falls in the share market due to economic shocks impact most companies simultaneously. During the COVID-19 pandemic in 2020, the ASX fell 37%, affecting nearly all sectors.
Company-specific risk: Poor management decisions, weak governance, regulatory enforcement, fraud, or industry disruption can devastate one company while others thrive.
Liquidity risk: Thinly traded shares, especially small-caps or private company shares, can be hard to sell shares quickly at a fair price. Daily volumes under AUD 1 million often mean wider bid-ask spreads.
Practical risk-management techniques include:
Diversification across sectors and geographies
Limiting position sizes (e.g., maximum 5% per stock)
Setting clear time horizons and exit plans
Embedding investment activities into broader risk frameworks
Anyone uncertain about their approach should seek independent advice from a professional adviser.
How to Invest in Shares in Practice
The main channels for buying shares include online brokers, full-service brokers and managed vehicles like ETFs and managed funds. For many investors, this raises the question of structure — particularly when comparing ETFs and individual shares as part of a broader investment strategy.
The typical Australian process:
Open a brokerage account (platforms like CommSec, SelfWealth)
Complete identification checks
Link a bank account
Ensure you have enough funds to cover purchases plus any brokerage fee
Place orders on the ASX or other markets
Common order types:
Order Type | Description |
|---|---|
Market order | Executed immediately at available market price |
Limit order | Only executes at or better than your chosen price |
Settlement usually occurs on a T+2 basis, meaning you’ll own the shares two business days after purchase.
Investors should clarify investment objectives, timeframes and risk tolerances in writing before placing orders. Those requiring guidance on a financial product should consult someone with an Australian credit licence or appropriate authorisation.
Maintaining clear records of investment decisions, approvals and rationales supports both financial audits and effective portfolio management.
Building and Monitoring a Share Portfolio
A share portfolio comprises all shares and related investments an investor owns at any given time. Effective portfolio construction balances potential returns against concentration risk.
Diversification strategies:
Across sectors (financials, resources, healthcare, technology)
Across geographies (Australian shares, US, Asia)
Across company sizes and market capitalisation ranges
Through vehicles like exchange traded funds for instant diversification
Regular monitoring is essential. Review company information including the company’s annual report, governance changes, enforcement actions and key financial metrics at least yearly. Compare performance against company’s competitors in the same sector.
Periodic rebalancing keeps your investment portfolio aligned with risk appetite, liquidity needs and any internal investment policy. If one holding grows to represent an outsized portion, consider whether to sell shares to rebalance.
FAQs: Common Questions About Investing in Shares
Is investing in shares suitable for every investor?
Suitability depends on cash flow stability, risk tolerance, and strategic objectives. Investors should have stable cash reserves (generally 6+ months of operating expenses) before considering share investments. Different investment strategies suit different circumstances—seek independent advice from a professional adviser before committing capital.
How long should I plan to hold shares?
Many investors plan for 5-10 year horizons to capture capital growth and weather short-term volatility. Investors may have shorter or longer timeframes depending on funding needs. Remember that past performance of one or more companies is not a reliable indicator of future perfRemember that past performance of one or more companies is not a reliable indicator of future performance.
How Money Path Can Help
Navigating the complexities of investing in shares and managing your financial portfolio can be challenging. Money Path offers expert guidance tailored to your unique financial goals and risk tolerance. Whether you are a first-time investor or looking to optimize an existing share portfolio, Money Path provides personalized investment strategies, market insights, and ongoing support to help you make informed decisions. New investors, in particular, can benefit from professional guidance to navigate the complexities of investing in shares.
With Money Path, you gain access to:
Professional advice on share selection, diversification, and risk management
Assistance with understanding taxation implications, including capital gains tax and dividend imputation
Tools and resources to monitor your share portfolio and adjust your investment strategy as market conditions evolve
Support in aligning your investments with your broader financial planning and long-term objectives
Reports of stolen shares due to identity theft are on the rise, prompting ASIC to warn investors to be vigilant.
Partnering with Money Path ensures you have a trusted advisor to help you confidently invest in shares, maximize potential returns, and navigate market volatility with greater ease.
If you need access to more money quickly, shares may present liquidity challenges.
How are shares taxed in Australia?
Profits from selling shares are generally subject to capital gains tax (CGT). Individuals who have held shares for over 12 months may qualify for a 50% CGT discount. Under Australia’s dividend imputation system, the paid tax by the company on its profits allows investors to receive franking credits attached to franked dividends—these tax credits can be used to offset your own tax liability. This means you benefit from tax already paid at the company level, reducing the risk of double taxation. Always obtain up-to-date tax advice for your particular situation.
How are shares taxed in Australia?
Profits from selling shares are generally subject to capital gains tax (CGT). Individuals who have held shares for over 12 months may qualify for a 50% CGT discount. Australia’s dividend imputation system means franked dividends come with credits reflecting tax already paid by the company—reducing your tax liability. Always obtain up-to-date tax advice for your particular situation.
Understanding what it means to invest in shares is just the first step. Whether you’re looking to buy shares for growth, receive dividend payments for income, or simply ensure your existing share portfolio meets your financial goals, robust planning and informed decision-making are essential.
Contact a professional financial adviser today to discuss how investing in shares can fit within your broader financial strategy.
