Good Reasons Why Everyone Should Invest In Shares

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Millions of shares may be floating around the stock market but a surprisingly few investors own them – even though there are good reasons why they should.

Data from the Office of National Statistics suggest individual investors own less than 12% of shares listed on the London Stock Market.

Another 16% are owned by institutional investors – which are banks, insurance companies, pension funds and the like.

But a massive 54% are in the hands of foreign investors – and most of those are institutions as well.

If you qualify, the best way to own shares is in a tax-wrapper like a pension or ISA.

Tax-free growth

Pensions and ISAs come with tax-free fund growth which exempts any gain in value of the shares from capital gains tax.

But even if you cannot benefit from a tax-wrapper, shares are still a worthwhile investment – and here’s why:

They are a store of value. An annual study by Barclays Bank shows cash in a bank or building society returns are around zero and stashing cash at home returns -1.9% thanks to inflation.

But shares have a yield of an average 3.2% a year over the past 10 years.

Shares have not only performed well over the past decade.

Over the 118 years of Barclays analysis of the stock market, shares have better returns than cash and gilts. Over the past 50 years, shares returned 5.6%, compared with 1.2% a year for cash and 3.1% a year for gilts.

Income from dividends

Besides growth in value, shares also offer an income in dividends. Although most investors think about making a profit from growth, dividends can provide a tidy annual income – and the first £2,000 investors earn is tax-free. Mixing-and-matching tax rates with shelters offered by pensions and ISAs gives investors paying tax at the highest rate opportunities to speculate.

Investors can also benefit from holding shares on the London Alternative Investment Market (AIM) as holding shares in qualifying businesses exempts them from inheritance tax. AIM shares carry more risk than FTSE100 or FTSE250 shares, but can provide a useful way to transfer wealth between generations for older investors.

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