Risks and benefits

When a company is performing poorly it may be difficult to find a buyer for your shares at the price you want to sell them. As a result the sale price of your shareholding may be considerably lower than the price you paid for them. 

In the event that the company you own shares in goes out of business, its shares will no longer be tradable on the ASX, and the company may be ‘delisted’. If the company goes into liquidation, shareholders rank behind the company’s other creditors. As a result shareholders may receive only a fraction of their original investment amount or could face the prospect of the complete loss of the amount they invested in the shares of that company.

Insolvency: A Guide for Shareholders from ASIC

Share prices can rise and fall rapidly and investors must accept the fact that the value of their shares may fluctuate significantly. Market risk can impact some sectors more than others. Specific risk can relate to the performance of an individual share.

Because of market cycles, some shares have a higher degree of risk when the overall sharemarket has risen sharply and is set for a reaction. The opposite may apply when the market has gone into a strong decline and then starts to recover after showing some signs of stabilising. Not all sectors of the market follow the same price cycles. Understanding business cycles and how different companies perform during the different phases of the business cycle can help to manage the effects of timing risk.

Are the investment recommendations made to you supported by a thoroughly argued case, or are they merely hearsay? The more reliable information you have, the better your decisions will be. Adopting a disciplined decision-making process will help you to minimise losses while you build a portfolio over a long-term period. Recommendations involving high rates of investment return can fail to produce satisfactory results when taxation, ongoing fees and constant changes in investment cycles affect the performance. ASIC has some excellent information on getting financial advice on their website.

Your investment strategies or even individual investments could be affected by changes to law. 

If invest in overseas shares, adverse moves in currency need to be considered. This is because when you bring your profits home they need to be converted from the foreign currency into Australian dollars.

Dividend data is usually available the day after the company has announced the dividend, simply type in the company code to view the last four dividend payments. Only cash dividends are displayed.

The amount of dividend is usually a percentage of company earnings and is called the dividend payout ratio. Each dividend has a record date, ex-dividend date and date payable.

The record date is 5.00pm on the date a company closes its share register to determine which shareholders are entitled to receive the current dividend.  It is the date where all changes to registration details must be finalised.

The ex-dividend date occurs one business day before the company's record date. To be entitled to a dividend a shareholder must have purchased the shares before the ex-dividend date. If you purchase shares on or after that date, the previous owner of the shares (and not you) is entitled to the dividend.

A company's share price may move up as the ex-dividend date approaches and then fall after the ex-dividend date.

The Date payable is the date on which a company's dividend is paid to shareholders.

Before the ex-dividend date the shares are said to be cum dividend. If you buy shares whilst they are cum dividend you are entitled to the recently announced dividend.