how to purchase shares. First, you need to understand the risks. Yes, share prices can rocket, but they can also plummet – and there are no guarantees either way. For example, you might buy 50 shares in Company A at 500p a share. The shares could climb to 600p in the first few months, but then drop to 400p after some poor trading results. Your original £250 stake would now be worth £200, a loss of £50. It could recover again – or it could fall even further. This risk element means you should only ever invest money in shares that you can afford to lose. In other words, make sure you can pay your mortgage and any other essential bills before you start dabbling in the stock market. Do your homework There’s lots of information available about the companies listed on the stock market – and it pays to do some research. Find out about the company’s recent performance and consider its chances of success in its own sector and in the wider economy. Remember, too, that some firms are inherently more risky than others. A FTSE 100 company, for example, is probably a safer bet than a small start-up business, though if you can stomach the greater risk, you might be in line for a greater reward. Long haul Some people don’t hold onto shares for long, cashing in on small fluctuations in the price on a regular basis. But such ‘trading’, as it is sometimes called, is only for the more experienced investor. Most people are advised to keep their shares for at least five years, if not longer, so riding out the inevitable ups and downs of the market.
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