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Shares: companies you own a piece ofrisk 4 of 5: high, can drop a lot

Domestic shares

Rules, protection and tax below are for Portugal.

What it is

Part ownership of a company. A share entitles you to a slice of the profits the company chooses to pay out, called a dividend, and to a vote at its meetings. Its price on the exchange is what other people will pay today for that slice of the future.

Over decades, owning a broad spread of companies has been the most reliable way ordinary people have grown money faster than inflation. Owning one or two companies is a different activity: the outcome depends on those particular businesses, and plenty of once-solid names have gone to nothing.

Shares in your own country are the easiest to buy, cheapest to hold and simplest for tax. They also mean your job, your house and your investments all ride the same economy.

How it works

  1. You open an account with a broker, which holds the shares for you and executes your orders on the exchange.
  2. You pay the price on screen plus the spread, any commission, and in some countries a purchase tax.
  3. Dividends land in your account when the company pays them; you can take them or reinvest.
  4. You sell whenever the market is open, at whatever the price is then, and any gain may be taxed.

The honest pros and cons

For

  • The highest long-run returns of the mainstream asset classes, historically.
  • Cheap to buy and hold, with no fund fee at all.
  • Dividends give an income that has tended to grow over time.
  • You can sell in seconds on any trading day.

Against

  • Single companies fail; a concentrated holding can lose everything.
  • Prices fall 30 to 50 percent in bad years, and you have to be able to sit through that.
  • Picking winners is much harder than it looks; most people underperform a plain index fund.
  • Everything you own may already depend on your home economy, so more of it adds no diversification.

Getting it in Portugal

not researched

Wherever you are

  1. Open a brokerage account, preferably inside whatever tax shelter your country offers.
  2. Decide whether you are buying a few companies you understand or a broad spread; if it is the spread, an index fund does it for you cheaply.
  3. Set a limit on how much of your total money sits in any one company; 5 percent is a common ceiling.
  4. Buy, record the price for tax, and stop looking at it every day.

Go deeper

Also called

stocks, equities, ações, acciones, common stock

Often confused with

  • Corporate bond: A loan to a company that pays interest; riskier than lending to a government because companies fail more often.
  • Foreign shares: Part ownership of a company listed in another country; currency moves affect your return too.
  • Stock index ETF: A fund traded on an exchange that copies a stock market index at low cost.
Domestic shares in Portugal · wealth-coop