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Positives and negatives of investing in shares

Emma Olsen
Stocks and shares
Stocks and shares  Flickr

We get advice on how to know which companies are best to invest in as well as the pros and cons.

All investors have their specific criteria. Liquidity in a company and industries with a particular product/service that the investor thinks has a long term potential is the way to go said ANZ Private Banker, Neville Giles.

Pie Funds Wealth Advisor, Simon Hepple, believes it is a risky strategy to invest in only a number of businesses.

"A much safer way to invest is to spread your money amongst a number of businesses and don't target just one or two sectors.

"The tourism sector went from boom to gloom within a month. Even well-run tourism businesses like Auckland Airport and Tourism Holdings have been hit badly by COVID-19 and a diversified investment portfolio will help to mitigate this risk."

Unlike other forms of investment such as term deposits and bonds, there is nearly 'always' a market to buy or sell shares.

"You can also structure your money with shares to reflect how you live. I believe that the Environmental movement is still in its infancy. Through share purchases, you can exclude investments in oil exploration, fracking or armaments. If enough investors do this, it can change company behaviour."

Investing in shares is also another way to diversify your savings away from assets like property said, Giles.

Milford Assets Portfolio Manager, Mark Riggall, believes the biggest positive that comes from investing in shares is the potential gains on your investments if the companies you invest in do well.

However, the biggest negative is that you can lose all your money if the company goes bankrupt.

"If you have done your homework and understand the key drivers of the company's profits then a lower share price might offer an opportunity to increase your investment at a lower price. However, if the lower price reflects a more permanent change in fortunes for the company then you may wish to sell the shares, take the loss and look for a more attractive investment."

In some cases, a much lower return than you were expecting or the loss of your total investment would be a downside, but only if you invest poorly said Hepple.