When you buy a stock, you’re buying a share in the company that has issued the stock. Your share may come with rights like the ability to vote at shareholder meetings. Shares tend to be riskier investments than cash or bonds because the value of your investment may go up and down as the market fluctuates. But along the way, you may receive a regular income in the form of dividend payments.
In Australia, many listed companies issue franked dividends to their shareholders, meaning that tax has already been paid. Dividends can be partially franked or fully franked. Whether you need to need to pay any more tax will depend on your marginal tax rate compared to the level of franking attached to the dividend.
These are the biggest stocks traded on the stock exchange in terms of overall market capitalisation, or the total value of the company’s shares. Blue chip shares tend to have an excellent track record in terms of corporate earnings and deliver stable returns for their shareholders. In Australia, blue chip shares include miners like BHP, telcos like Telstra and the big banks.
Bulls and bears
When the value of investments is rising, it’s often referred to as a ‘bull market’. When the value of investments is falling, it’s often referred to as a ‘bear’ market. People usually refer to bulls and bears when talking about the sharemarket, but they could refer to any commodity that’s traded on an investment market.
Companies and governments sometimes issue bonds to raise money for projects. When you buy a bond you are essentially loaning your money. Your money will be returned after a fixed period of time, when the bond ‘matures’. And along the way you may receive regular interest payments, which could vary depending on the interest rate applied. Bonds are sometimes called fixed income securities and tend to involve less risk (but less potential return) than shares.
All investments carry some form of risk, and we’ve only scratched the surface of the world of investments. To learn more, you can: