Investing in shares on the stock exchange is an adventure in its own right. If you know what you are doing, you can quickly grow your capital – but there are also a fair few risks involved. You can manage everything yourself, but it's a good idea to base your decisions on expert advice. Or you can opt to have things managed completely by someone with experience.
What are shares?
Let's start here. Put simply, a share is a part of a company. You are buying a certain percentage of ownership of a company. Large companies listed on the stock exchange 'split' their company into equal portions. There can be millions of these portions, and a portion of this kind is called a share.
A value is assigned to the company at its Initial Public Offering, which also results in a value for each share. After this point it is primarily the investors who determine the evolution of the stock market price. The greater the demand for the shares, the more expensive they become – and vice versa.
Imagine that terrible news suddenly emerges about the company and a large number of shareholders want to sell their shares. The market will then be flooded with shares, and their value will decrease sharply as a result. The reverse is also possible, of course.
Highest possible return
Investing in shares is popular, and there's a reason for that: it provides the highest return on average, at least in the long term. More so than corporate bonds, government bonds or savings certificates.
You can expect the following return* on average in the long term
- Shares: 8.25% return per year
- Cash: 3.75%
- Bonds: 5.25%
We have assumed an average annual rate of inflation of 3% for this.
But there's also a flip-side to the coin: shares are also the investment product carrying the highest degree of risk. Their prices can increase quickly at short notice, but can also quickly decrease. Shares react directly to changes on the financial markets. Just think of the crisis that we are all currently dealing with.
* Source: KBC Asset Management. Past returns do not offer any indicator of the future. The percentages provided are gross figures and exclude charges and taxes. You can find the method used to calculate these returns and the products they apply to in the Strategy Background Note 'Risk and return, a framework for the long term'. This publication can be found on the KBC Asset Management website or accessed via the link below.
Strategy Background Note
The trading floor in the comfort of your home
Until relatively recently, you would have had to visit a stock exchange in order to invest in shares, or make a phone call to a broker.
Nowadays, things are much easier. You can simply pick up your tablet or smartphone and buy or sell shares from the comfort of your armchair. Via KBC Bolero, for example. You can use this platform to invest in over 20 stock exchanges worldwide.
Not an expert? Not a problem!
Most investment tools ask you to take a test before allowing you to invest on the stock exchange independently. These tests are designed to gauge whether you have a minimum level of investment knowledge.
If you have a basic understanding of how money and the market work, then you're already well on your way to becoming an investor. You should also keep an eye on fluctuations on the markets in order to be able to react to them.
Above all, you need a healthy dose of common sense. Not to mention patience. If a share that you have already owned for a while suddenly performs badly, many inexperienced investors would quickly sell it at a loss. However, the same share may end up becoming profitable once more with a little patience.
Are you still reluctant to dive into the stock market completely on your own? There are a whole host of experts and asset managers ready to help you. KBC also offers a number of customised options in the form of Asset Management, Premium Banking and Private Banking in order to provide you with the advice and guidance you need. It is even perfectly possible to hand over the full management of your assets to KBC.
What do you need in order to invest?
A dose of good luck? Perhaps. However, the element of chance involved in investing in shares is smaller than many people think. Naturally, you can suffer setbacks or have good luck and gain or lose a lot of money as a result of unexpected events. But the stock exchange behaves logically most of the time.
So what do you need?
- An investment tool (Bolero)
- Knowledge and interest
- Common sense
- Discipline and self-control
- (Good luck is always helpful)
Are you tempted to invest?
As any investor will tell you: don't put all your eggs in one basket. Diversify your investments. A good basis is a savings account with a decent reserve. Are you also accruing pension savings and long-term savings? That will give you a good buffer for your investment portfolio. After that, what you do with the rest of your assets is naturally up to you. However, you should be aware that investing in shares always involves a degree of risk.
Your KBC adviser can help you to map out your risk profile, which will already provide you with more information. Investing in equity funds is also an option. This involves investing in a fund where the fund manager decides what shares to buy.