For many people the stock market seems intangible compared to other things like property, where you can actually walk on it. However, the value of a share investment can be more easily ascertained than the value of a property. With shares it is as simple as looking up the daily stock market prices in the newspaper or from the internet.

Don't know what is a share? Well it's simple - a share is a more portion of a company. So if a company has 1,000,000 issued shares and you own three, you actually own 3/1,000,000 of that company.

We all know you can make money from trading on the stock market - it is no secret. Everyone has read about people who have made a fortune, or had a family member or friend who has done well on the stock market. Follow this link to view the trading results of some of our HomeTrader clients to prove it can be done.

Click here for more information on using the share market to create wealth or attend HomeTrader's FREE Intro Seminar.

In addition to making money by buying and selling shares there are many other benefits to investing in or trading shares.

Share Income vs. Capital Growth

Are you seeking increased share value (capital gains) or regular dividends (income)? That is, do you want your shares to increase in value so that you can sell them and make a profit or would you prefer to be paid dividends as a source of regular income that are greater than the cost of living?

The initial dividend yield is the portion of its profits that a company pays to its shareholders. The dividend is generally paid every six months. Not all of the company's profits are paid in dividends. A company's Board of directors will usually decide how much of the profit should be distributed back to the shareholders and how much should be ploughed back into the business, to increase further the company's worth. In some cases, the Board may decide to re-invest the entire profit.

These differing circumstances highlight one of the main questions you should ask yourself when considering which shares to buy (i.e. mature blue-chips through to young speculative companies).

Taxation Situation

As with anything to do with money, earnings and investing, taxation is also an issue.

Advice should be sought from your accountant or tax adviser.

Tax benefits from shareholdings are available because many companies pay tax on their profits, meaning investors receive tax credits (franking or imputation credits) on the dividends they receive. Shareholders may pay little or no tax on the dividends they receive.

The way that you purchase shares and the type of return you get will affect the amount of tax that you will pay. Selling shares may make you liable for capital gains tax. Again, it depends on your individual circumstances and the types of investment decisions you have made that will determine how much tax may be payable. It is recommended that you sit down with an accountant or financial adviser before committing yourself to a large investment in the share market. They will be able to go through your situation and work out the best way for you to invest.

Liquid Assets

Another thing to think about is whether you will require some of your funds in the near future. You may want to buy a house or travel overseas. If that is the case, you should carefully consider the shares you choose, as well as how much you wish to invest in the share market in the first place.

Most shares are a liquid investment, that is, they can be bought and sold as and when required. Selling a property can take months. Selling a share can take seconds. Shareholders can choose to divest themselves of just a portion of their holdings in a particular company, or they can sell the lot. Such an option is not available with property.

Volatility and Risk Tolerance

Although the market has proven to return higher profits over time than most other secure forms of investment, the market does experience peaks and troughs. The share market is generally more volatile than other asset classes and offers potentially larger returns but this is associated with higher risks.

If you enter the market at the wrong time and wish to sell within a short period, it is conceivable that you could lose money. If you are using the share market just to house your funds and realise a small profit, security is the key.

Some people like taking risks. They jump out of airplanes and parachute to the ground or they bungee jump from cliff tops and bridges. Others prefer to keep their feet on the ground. A quiet walk in the bush is more their style. The same applies to buying shares. You have to feel comfortable with your decision.

Think about your attitude to risk or risk tolerance before choosing a stock. If you are not comfortable with the highflying approach, steer clear of shares that offer potentially large returns but with a greater degree of risk. Make sure you will be able to sleep well at night.

Remember that all types of investments are a form of gambling, though some are obviously a higher risk than others.

Portfolio Diversification

Creating a share portfolio can enable you to invest in a number of different industry sectors. By investing in companies operating in different industry sectors, you minimise losses from one badly performing sector. As one sector suffers a downturn, another may be experiencing growth.

The access to diversification is one of the major reasons that a well-balanced share portfolio invariably outperforms many other types of investments.

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