Why invest in shares?
What are shares?
A share is a portion of a company. By investing in shares, you become a shareholder (and therefore co-owner) of that company. In other words, you are purchasing a certain percentage of ownership of that company. A listed company can issue millions of shares.
Why invest in exchange-listed shares?
A listed company invests the money it raises on the stock market to create profits, which in turn benefits the economy and the company’s share price. As a shareholder, you also stand to gain from this situation, because if that company is doing well and its share price starts going up, the value of your share goes up too. What's more, you often receive some of the profits each year in the form of a dividend.
You can use Bolero, the online trading platform run by KBC Brussels, to buy and sell shares yourself on more than 20 stock exchanges.
Risks associated with share investments
One of the main risks is that you have no guarantee of getting back the money you've invested, since you don't know in advance whether the company will end up making a profit or a loss. If there is a recession or a bankruptcy, for example, shares can lose all or part of their value, causing you to lose all or part of your investment.
The price of a share also depends on many different factors. Some are linked to the company itself, such as the sector it operates in or its management team, but others are external, such as political events or natural disasters, and have an impact too. The interplay of these factors and their unpredictability can cause considerable volatility on the stock market, both in the positive and negative sense.
How can you reduce risks?
The challenge facing share investors, therefore, is to try and reap any benefits while at the same time keep the risks as low as possible. By holding on to your investments for long enough, spreading them over time and investing in the shares of companies operating in different sectors, regions, etc., any price fluctuations that arise will have less impact on your final profit.
In historical terms, shares generate a positive return in the long term. This doesn't mean to say that a recession or even a stock market crash will occur from time to time. To date, however, the global economy has always recovered and markets have steamed ahead to new all-time highs.
That's why it's best to invest over a sufficiently long time horizon, which ideally is several years. It means you can benefit from a potentially high return when things are going well, and you can sit out the crisis when things aren't. If you also reinvest any gains you make on the stock market, you may benefit from exponential growth. That is known as the capitalisation or snowball effect, where your gains might end up generating further gains.
One of the most frequently asked questions by inexperienced investors is, ‘When is the best time to buy shares?’. The ideal moment is just after a stock market correction, because you can in effect buy shares at a discount. However, those sitting back waiting for the ideal moment can sometimes miss out on attractive returns for many years.
The problem is that no-one can predict when the next big fall in prices will occur. A sensible strategy, therefore, is to adopt a staggered approach, where you invest a certain amount each month. That way, you don't miss out on return by continually postponing when to invest. At the same time, you avoid the situation where you've spent a large sum of money in buying shares that have lost a lot of value after a crash.
Put simply, by ensuring adequate diversification you are not dependent on the performance of one company or one sector. If you invest in the shares of many different companies, any gain or loss will not be determined by a single performance.
Investing in an investment fund ticks all the boxes if you prefer to leave the management of your investment to our experts. You can spread your investments over time in such a fund when you take out an investment plan and the investments will be diversified, because – depending on the fund – you invest in dozens or even hundreds of different shares and other assets at the same time.
