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Shares 101

Shares underpin almost every investment – from your superannuation to managed funds. The first step to becoming the next Warren Buffett is to understand the basics of shares Stockbrokersand the sharemarket.

What is a share?

A company that wants to set up a new business, or expand its existing business, may be able to raise the money it needs by becoming a listed company on the stock exchange and issue shares to investors (such as you!). If you buy a share in a company, you will be a part owner and share in its profits (through dividends) and growth (when the share price increases). Shares are also sometimes known as equities, securities or stocks.

What is the sharemarket?

A sharemarket is the place where the company’s shares are traded. In Australia it is called the ASX – the Australian Securities Exchange (once called the Australian Stock Exchange). There are more than 2,000 companies currently listed.

What are the ‘All Ordinaries’?

The All Ordinaries is the Australian benchmark index that tracks how the Australian sharemarket as a whole is performing. It comprises approximately 500 of the largest companies on the ASX. Other countries equivalents are the Dow Jones (US), the Nikkei (Japan), the FSTE (UK) and the Hang Seng (Hong Kong).

Why do share prices go up and down?

The sharemarket is a marketplace like any other – the forces of supply and demand determine the price of shares. The more people who want to get hold of a particular share, the higher its price will go. The more people who want to get rid of a share, the lower it will go. The share price you see in the business pages of the newspaper is the last price traded on the previous business day.

Moneygirl recommends

ASX – Online courses

The Australian Securities Exchange has developed a number of free short online courses including What is a share and Risks and benefits of shares – it’s a great place to start.

ASX – Education section

The Education section of the ASX site offers several handy tools. Try downloading and reading the Getting started in shares booklet, check out the first time investors’ section and do some of the tutorials.

MoneySmart – Shares

Explore the shares section of the Australian Securities and Investments Commission consumer website MoneySmart – another good way to learn more.

Find a financial adviser

Check out the Australian Securities and Investments Commission’s website MoneySmart – it has loads of great information about obtaining personal financial advice and finding a qualified financial adviser. Experts often suggest you find an adviser who charges by the hour instead of receiving a commission.

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