Just as companies have different characteristics, so do investors. Some people buy shares because they want a regular income. Some people buy shares because they want to see their capital appreciate significantly. Some investors are extremely cautious; others prefer taking risks.
Before investing in shares, it is advisable to think about your own investment profile.
- Investors seeking regular dividends that rise steadily every year will be attracted to income stocks;
- Investors who are less in need of income but are keen on capital gain may be more attracted to growth stocks;
- Investors who are buying shares for a specific purpose, such as their child’s education, may be extremely risk-averse. They will look for the most solid, reliable stocks in the market, such as large oil or utility shares;
- Other investors may be buying shares with surplus cash and they may be more prepared to take risks with their money.
Over time, most shares will generate reasonable returns but different investors have different timeframes and the longer shares are held, the more opportunity they have to perform.
Most investors in shares are looking for a combination of income and capital gain. This can best be achieved through what is known as a diversified portfolio. Instead of buying one or two shares, investors buy a range of shares, each with different characteristics. These will include some large companies, some small; some from relatively safe sectors, some from higher growth areas.
If the right choice is made, this selection of shares can deliver capital growth, dividend income and a balance of risk and reward.