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 should you hold your shares?
Exchange trade funds

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.

As you have to pay charges when you buy shares and you must pay taxes on your profits and dividends, you may want to get professional advice to help you decide what option is most suitable for you.

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.

How should you hold your shares?

You can hold shares either:

in paper form as share certificates or
electronically in a nominee account or a Crest personal member account

Certificates are no longer used in many countries and will be phased out in Ireland in the coming years. They will be replaced with a new type of electronic account that allows you to buy and sell shares more easily by quoting your account reference number.

Ways of holding shares

Options	Benefit	Costs or risks
Share certificates (paper-based)	You legally own the shares. You receive all documents. You can deal through any stockbroker. Your dividends are paid directly to you.	They are costly to replace if lost or stolen. They expose you to fraud if they fall into wrong hands. You must present them if you decide to sell your shares which can cause delays. A time delay in selling could lose you money (if the share price falls).
Nominee account (electronic)	You can avoid unnecessary documents. You get regular statements showing the shares you hold and any trading you have carried out. You can instruct your stockbroker to buy or sell instantly using your reference number.	You are not the legal owner of the shares. You pay an account service fee. You must deal with your own broker. The stockbroker controls your shares, including dividends.
Crest personal accounts (electronic)	You legally own the shares. You receive all documents. Your dividends are paid directly to you. You can instruct your stockbroker to buy or sell instantly using your reference number.	You pay an account service fee. You must deal with your own stockbroker.

Exchange traded funds (ETFs)

ETFs are sold, in the same way as shares, by stockbrokers and some financial advisors. They track the performance of a particular Index (made up of a basket of shares), such as the ISEQ 20 Index - an index of the leading shares quoted on the Irish Stock Exchange. An index may also comprise a basket of shares tracking a certain industry or sector, for example gold, oil & gas, water, alternative energy, coal or utilities. Many of these industries are international, so the companies you invest in through the ETF could be located throughout the world.

If your ETF is tied to the value of the ISEQ 20 Index and the ISEQ 20 Index rises in value, your investment will also rise in value. Similarly, if the index your ETF invests in falls, your investment falls.

ETFs are more flexible than unit-linked funds or tracker bonds as you can buy and sell them in the same way as you would buy and sell shares on the stock exchange.

About ETFs:

ETFs are held in electronic form only
You pay a management fee each year, which is included in the price of the ETF. The fee is usually lower than typical charges for managing funds in a unit-linked fund.
You get dividend payments.
When buying or selling, your stockbroker will generally quote prices based on the value of the shares, plus their commission and any trading fee.
You do not have to pay government stamp duty.

Saving and investing

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