Shares – Investors' Academy

What are shares?

Companies issue shares in order to raise money. These funds then enable the company to undertake activities and investments or to ensure that it complies with its legal obligations.

If you buy a share in a company, you become a part-owner of the company's capital. As a rule, this also entitles you to a vote at shareholders' meetings as well as a dividend (if the dividend is approved by the shareholders' general meeting). This is money that the company pays out to shareholders if it has made a profit. Shares may be listed on the stock exchange, but this is not necessarily the case. At ABN AMRO, you are investing in listed shares.

Buying and selling shares: what about returns?

The value of a share depends on the company's performance and developments on the financial markets. The return, if any, on the shares consists of the share increasing in value as well as any potential dividends. In short, shares offer an uncertain return. Investing in shares is attractive if you want to have a chance to earn a higher return than for other asset classes, such as bonds.

Buying and selling shares: the risks

Investing your money in shares involves more risk than investing in other asset classes. If the company in which you own shares is doing badly, the value of your shares will fall. In the event of bankruptcy, your shares may no longer be worth anything at all. The price of shares can be very volatile.

In order to reduce the inherent risks of investing in shares, it's always advisable to make sure you have sufficient diversification. This can be achieved by investing in shares of companies from different regions, in different sectors and in different currencies.

Below, we have listed the main risks of investing in shares for you:

Liquidity risk:
This risk reflects how difficult it is to sell a share. The higher the volume of a share that is traded, the lower the risk. Shares that you cannot easily buy or sell because there is not enough supply and/or demand are referred to as illiquid shares.
Price risk:
If a company is doing well, the value of your share may increase. If a company is doing less well, your share may be worth less. In the most extreme case – if the company goes bankrupt – your share will no longer be worth anything at all
Exchange rate risk:
If your share is listed in a currency other than the euro, you run a risk of the other currency moving against the euro. If the currency in which the share is listed falls in value, you may receive back less than your original investment in your base currency. Shares from countries in the eurozone may also be exposed to an exchange rate risk, which is often hidden in the share price. This depends on the level of activities that a company has in countries outside the eurozone.
Market risk:
Share prices can react to positive or negative reports on the market. Such reports may be about the company itself, general (macroeconomic) market conditions or geopolitical events. Whether the price of a share rises or falls, and how strongly (also referred to as its volatility), varies per company.
Performance risk:
You never know in advance what dividend you will receive. The amount per share is decided at the shareholders' annual general meeting. In addition, price trends, as mentioned above, may also have an impact on the return on shares.

General characteristics of shares

Primary market:
When a company issues new shares, you can buy them on the primary market.
Secondary market:
When you buy an existing share from another shareholder, you buy it on the secondary market (reflecting the current stock market price).
Stock market price:
The stock market price is the most current price at which a share is being traded on the relevant stock exchange, and provides a guide price for future purchases and sales. Shares may be listed on multiple stock exchanges and can therefore be bought and sold on different stock exchanges (potentially in different currencies, too). Moreover, a share price can fluctuate considerably within a single day.
Dividend:
If the company has made a profit, it may pay out a part of this to the shareholders as compensation for the risk capital they supplied. A dividend is the amount that is paid out for each share to the shareholders, which may be in the form of cash or more shares.
Term:
There is no fixed term. You keep a share for as long as you want.

Costs and taxes on investments in shares

Tax on stock exchange transactions (TST):
When you buy or sell a share on the stock exchange, you may have to pay stock market tax. This tax does not apply to purchases on the primary market.
Brokerage fee:
The fee charged by a broker to execute orders on the secondary market.
Custody fee:
The fee for holding a share in a custody account.
Withholding tax on dividends:
In Belgium, you have to pay tax on dividends. This is known as the withholding tax. For dividends of foreign origin, a withholding tax is often first withheld at source in the country of origin, before the dividend is taxed in Belgium. In some cases, you can claim back part of the withholding tax.
This depends on the double taxation treaty between Belgium and the country of origin.
Capital gains tax:
Capital gains on shares are generally tax-free. The description of the above costs and taxes is based on the situation where the investor is a natural person or Belgian resident. You can always contact your tax adviser to learn more about the situation in other cases.