Do you want to invest? Beyond the usual investments such as the Livret A or life insurance, there are ways to grow your savings. Among them is the purchase of shares in a company. What does it consist of? And is it a good plan to earn easy money?
Discover the strategies to put in place to buy shares of a company. And follow our tips for investing this way. Finally, we also reveal the risks that this entails as well as the costs to be expected.
Is it worth buying shares in a company?
For an investor, buying shares in a company is a way of diversifying their savings. This is a more profitable investment than regulated savings accounts. However, you have to be patient because a minimum of 5 years are necessary to make your investment grow.
And buying stocks also comes with risks. Before launching an assault on the financial markets, it is better to understand all the workings of the stock market (operation, hazards, etc.). To begin with, it is better to be cautious by investing a lesser amount of money. Keep in mind that you are never certain of getting back the full amount invested.
Who can buy shares of a company?
In principle, anyone can buy shares in a company. There are two markets on which it is possible to acquire listed securities:
- the primary market: a company, listed on the stock market, offers shares for the first time. The issue price is established in agreement with the authorities responsible for regulating the market;
- the secondary market: the exchange of shares takes place between investors at a price which fluctuates according to supply and demand.
On the primary market, you buy so-called “new” shares while the secondary market offers “used” shares. Even if it is necessary to distinguish these two markets, they are nevertheless closely linked. New shares in the primary market will eventually become used shares in the secondary market. The value of these shares is intended to fluctuate with supply and demand.
On the other hand, the investor can buy the shares of a company in different ways: directly, via a PEA or a securities account or through collective investment:
- in the context of a direct purchase, you are the only one to decide and you must follow the economic news in order to determine when is the best time to sell and buy;
- and in the case of a collective investment, the investment is made in a fund or a SICAV. You hold a share of a portfolio already made up of shares of various companies. This portfolio is managed by a professional.
The two strategies for buying shares of a company
The capital of a company is necessary for its proper functioning: purchase of raw materials, payment of employees and suppliers, financing of machines, etc.
Generally, large national or international companies issue shares through the financial market. They are then said to be listed on the stock exchange. Anyone can buy them to take part in the business.
You will profit from the transaction by selling the shares at a higher price. However, there are other ways to make money:
- the first technique consists in buying a security and reselling it as soon as the price has evolved favorably. But, it is above all a gamble since this method is more speculation than investment;
- as for the second solution, it is to buy shares in a company by investing. Thus, companies pay a dividend at the end of each financial year. This usually happens once a year. The dividend represents the amount paid for each share owned. This strategy is used by Warren Buffet, the wealthiest investor in the world.
How to buy shares of a company?
To buy shares in a company with the aim of recovering the dividend, the following steps must be followed.
Find the right company
First, before buying shares in a company, you should analyze the companies that interest you. It is not enough to select those that pay a large dividend.
It is advisable to buy shares in a healthy company: regular and growing turnover based on the last 10 years, easy-to-understand business… Do not hesitate to consult the company’s accounts. You will find them on the Internet, they are totally free.
Know the real value of the action
To buy the stock at a good price, you have to wait for the current stock price to reach your purchase price. For this, it is necessary to follow several companies over time by creating a table in Excel, for example. This will allow you not to miss a buying opportunity.
To reinvest or not?
Reinvest means that you have made a good investment. Partly because you’ve bet on a healthy company with a business model that will still exist, even if the market crashes.
When you receive your first dividend, you can be paid in stock or in cash. This means that you have the choice between reinvesting, provided that the price offered corresponds to the real value of the business, or getting your money back.
How much does it cost to buy shares?
Purchasing shares has a cost, unlike holding a livret A, for example, which does not incur any fees.
Indeed, account maintenance fees must be provided if you have a securities account or a PEA. Since these are contractual conditions, it is advisable to compare the offers with each other.
In addition, each stock market order is accompanied by brokerage fees. And if you buy units through a collective investment, you also have to pay entry fees and ongoing charges. To make your savings project a success, remember to take into account all these additional costs.
Finally, in terms of taxation, be aware that dividends, as well as capital gains made on the sale of a share are taxable.
Read also: What are the types of stocks on the French stock market?