If you were to think of a company as a cake, shares are simply slices (ok, more realistically bites or even crumbs) of that cake. When you buy shares, you’re buying pieces of a company, which you’ll own along with the other shareholders.

The value of shares is measured by the share price and reflects the performance of the company – so when the company does well the price of the shares will usually go up, and when the company does badly the price of the shares will usually fall and so you may not get back your original investment.

Shares are traded on the stockmarket and you can buy direct in a company that offers them. Any income you may receive from shares is paid in the form of dividends. The value of the dividends, if any, and the amount of times you receive them will depend on the company – but as a rule of thumb, it’s once or twice a year and the money can be paid directly to you, to someone else you choose or can be reinvested to buy more shares.

Income tax is payable on UK share dividends. Any dividends you receive will be paid net of a 10% tax credit. If you don't pay tax you can't reclaim this tax credit but, unless you are a higher rate tax payer, you will have no more tax to pay. Higher rate payers will have more income tax to pay.

Pros

• You can make a lot of money.
• You make your own decisions, which company you select to invest in is up to you.
• Any dividends are paid directly to you.
• Your only costs are when you buy and sell.

Cons

• You could lose some or all of your money.
• The value of your investment is reliant on the share price which will move up or down and depend on factors such as the performance of the company it’s invested in and other factors such as its future prospects and quality of its management.
• There’s no guaranteed option of a regular income - you’ll only get paid as and when the company decides.
• It’s expensive to spread your risk as you would need to buy shares in a range of different companies.
• It can be difficult and time consuming keeping up to date with all the movers and shakers.
• You’ll have to pay buying and selling costs every time – which can be expensive.

The key questions to think about are:

• Are you prepared to take a risk with your money?
• Have you got the time to keep up to date with all the changes in the market?
• And are you prepared to leave your money invested if the markets fall?

If you’ve answered yes then stocks and shares could be for you.

However shares are one of the most risky types of investment (or asset class) so if you’re not sure you can get advice on buying stocks and shares direct through a stockbroker.

Alternatively if you want the potential benefits of stocks and shares, and don’t have the time or knowledge to invest direct then choosing an investment fund could be better for you. Investment funds offer access to a wider variety of stocks and shares as your money is pooled with that of other investors and is spread across a wide range of investments. This reduces the risk to your money as well as the costs of buying and selling.

If you’re serious about investing in stocks and shares, whether you’d like to invest directly or let a fund manager take the strain for you, it’s well worth talking to a stockbroker. They specialise in buying shares for a range of investors, or can do it on your behalf. Some can also offer you advice on the shares you have, including when to sell.

Alternatively if you’re not sure this is for you, it’s well worth speaking to a financial adviser before you make any investment decisions.

Get advice – investing in stocks and shares is risky and you should get advice from a stockbroker before buying.

Don’t put all your eggs in one basket – if you want to reduce the risk to your money, one option is to spread your investment around a good range of companies.

Don’t panic – share prices can go up and down daily. Make sure you’re selling because you think it’s a good time and not because you panicked.

It pays to be in the know – check out the TV and press to know what’s happening with your shares, the market as a whole and who the movers and shakers are.

Share the risk – if you don’t want all the risks and costs of investing direct you could consider an investment fund instead.