How do stock market investments work?
When you invest in the stock market your money buys shares in companies. When companies are profitable their share prices tend to rise. Companies also pay out regular dividends to shareholders. These two factors can both increase the value of your investment.How do we invest in the stock market?
Most experts agree that over the long term the stock market should outperform almost every known investment and that the surest way to take advantage of the full growth potential of the market is our tried and tested investment approach called index tracking.
With our tracker fund your investment gets spread across the shares of every one of the 600+ companies listed on the FTSE All-Share Index, ensuring that whenever the index is growing your investment keeps track with it every step of the way.
Here’s how the UK stock market has grown over the last 20 years:
Dividend payments and how they benefit you:
Dividends are payments made by companies to their shareholders when the company makes a profit. They are paid regularly and are key to increasing the value of your investment because the money from your dividend is added to the value of your investment.
Even in poor stock market periods your investment can still be growing because of dividends - dispelling the myth that you only make money from the stock market when the market is rising.
To put this in context, if your great grandfather had invested £100 in 1899 and spent the dividends, his £100 would now be worth just under £200. If he’d reinvested the dividends in his fund, like our tracker does, his £100 would be worth £22,426 in today’s money, which shows the huge importance of share dividends in growing your money. It’s not just about watching the FTSE index on the evening news.*
*Source: Barclays Capital - Equity Gilt Study 2006. £100 investment, end 1899 to end 2005.
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