4 Asset classes
Shares
A share, also
known as an equity, represents ownership of part of a company. When
you buy a share in a company, you become a joint owner of the business
and share in the future of that business. Shares are generally known
to provide the potential for the highest return of all the asset
classes. They are a 'growth' asset.
Besides providing capital growth as the value of the share price rises, shares can provide regular income through the payment of dividends. However, the potential for return can be even higher.
How? When a company makes a profit they have a choice of what to do with the funds.
Share investments provide growth and income opportunities
They could pay 100% of the profit to the shareholders as a dividend payment, or they could reinvest the profit back into the company - to finance expansion, new technologies or equipment for example. This ability to reinvest in the company to foster greater growth and future profit can result in higher share prices - the benefit of which is passed on to shareholders.
Often companies will choose to divide their profit and pay a portion as dividends to shareholders, and reinvest the remainder in the company. Ultimately the shareholders receive the two-fold benefit of regular dividend payments, as well as greater growth in share prices over the longer term.