Saving and investing

Shares and the stock market

There are several ways you can invest in the stock market:

• You can buy shares in companies that are traded on the stock market.
• You can invest in a basket of shares through an exchange traded fund (ETF).
• You can invest indirectly in the stock market through certain investments such as pooled investments where some of your money is invested in shares or indices of shares. Examples of pooled investments are unit-linked funds and tracker bonds.

Stocks and shares can be complex for the first-time investor. In this section you will find information to help you understand how they work:

• What is a share?
• What are the benefits and risks of shares?
• How to buy and sell shares
• Charges
• Taxes and profits
• How can you hold your shares?
• Exchange trade funds

You can also get information on:

What is a share?

A share is a small part of a company that you can buy for a set price. Share prices can move up or down in value, depending on the performance of the stock market, the current profitability of the company and the expected future profitability or potential of the company.

The aim is to invest in shares that increase in value over time.

You may also receive a dividend, which is a sum of money paid out of the company's profits to shareholders. Buying shares involves choosing companies that have the best potential to grow profits. It also means choosing business sectors that have the best growth potential.

What are the benefits and risks of shares?

• Benefits - you can potentially earn a good return on your investment from selling shares that have gone up in value since you bought them. You may also benefit from any dividends the company you have invested in may pay. Remember, you will have to pay tax on both your profits and your dividends.
• Risks - if your shares fall in value you can lose a lot of money when you come to sell them. Share prices can rise or fall quickly, which makes them more volatile and risky. It's important to ask yourself if you can afford to take a risk with all or some of your money.

The golden rule is not to invest money that you cannot afford to lose. If you want a guarantee that you cannot lose any of your money, then the stock market is not for you and you may want to consider other investment or savings options.

How to buy and sell shares

Only a stockbroker can buy or sell shares on the stock market. You can buy and sell shares by going directly to a stockbroker, to your local bank, through an investment broker, or with online share dealing. Some banks also operate online share dealing services.

Regardless of who you approach, a stockbroker will still be used to buy the shares. Always make sure your provider is regulated before you invest. You can get a list of regulated stockbrokers from the Financial Regulator’s registers site.

A stockbroker may offer three types of account:

• discretionary: the stockbroker makes investment decisions on your behalf, within agreed guidelines
• advisory: the stockbroker advises you on what shares to buy or sell or
• execution only: the stockbroker buys or sells shares that you have chosen yourself without offering any advice.

You have to pay charges when you buy shares and you must also pay taxes on your profits and dividends. Therefore, you may want to get professional advice before investing in shares.

Charges

Stockbrokers usually charge:

• fees, depending on the type of service you use and
• commission for buying and selling shares

Fees vary from one stockbroker to another, and depend on the type of service you use. Usually, you will pay the highest fees for a discretionary service and the lowest for an execution only service. Typical commission rates for buying and selling shares are a percentage of the purchase or sale value or a minimum flat fee. Some stockbrokers offer reduced commission rates on deals over a certain value.

Taxes and profits

When you buy shares, you have to pay stamp duty on the value of the shares you buy. You can get details on the current stamp duty rate from Revenue. Stamp duty is paid through your stockbroker.

You also have to pay tax on any dividends you get. Your stockbroker will provide you with a tax receipt for any dividends you earn. You will need to send these receipts to the Revenue with your normal tax returns each year.

If you make a profit above a certain amount in any tax year from the sale of your shares, you will have to pay capital gains tax (CGT). The rate of CGT can change from time to time and up-to-date information is available from Revenue. If you make losses on the sale of other shares within the same tax year, you can offset these losses against any profits to reduce the amount of CGT you must pay.

Your stockbroker will provide you with the necessary paperwork to send to Revenue with your tax returns.

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