Shares are one of the major asset classes and can be broadly categorised into Australian and international shares.
Investing in Australian shares provides investors with a part ownership in the company, entitling the shareholder to a portion of the company’s profits through dividends.
Investors may also receive capital gains if the shares are sold for a profit.
You can invest in any company listed on the Australian Securities Exchange (ASX).
At 30 June 2010, there were 22,192 ASX-listed companies with a market capitalisation of $1.65 trillion.
Visit the ASX website to learn more.
Options for investing in Australian shares
You can invest in Australian shares:
- directly by purchasing shares in specific companies through a stockbroker
- by purchasing units in a managed investment fund, or
- by purchasing shares in a listed investment company (LIC) or exchange traded fund (ETF).
Risk and return of Australian shares
Over the longer term (5 to 7 years), Australian shares may provide investors with higher returns than other asset classes such as cash or fixed interest. Over the shorter term however, returns from Australian shares may be subject to higher volatility as sharemarkets rise and fall.
The ASX includes various indices that measure the performance of companies according to their market capitalisation (such as the S&P/ASX 100 Index) or according to sector (such as the S&P/ASX 200 Energy Index).
Learn more about ASX indices.
Offsetting tax through franking credits
Apart from income generated by dividends and potential long term capital growth, Australian shares may also offer investors tax advantages through franking credits.
When a company pays dividends to shareholders, a portion of that dividend may be paid from profits that the company has already paid tax on. In this case, franking credits may be attached to the dividend. Franking credits can reduce the shareholder’s overall taxable income, depending on their individual situation.
Another tax benefit of investing in Australian shares is that if the shares are held for more than 12 months, they qualify for a 50% discount on any capital gains.