When it comes to investment opportunities, it can be difficult to choose how to best allocate your assets – unless you have a balanced portfolio, of course, with investments spread across different asset classes. One element to consider is the risk versus reward of each venture, and what it might mean for the return of your investment. By playing it smart – and that doesn't necessarily mean safe –there is a greater chance that you could maximise returns while minimising losses.
One form of investment that is considered to carry a certain amount of risk is the stock market, which is the purchase of a share in the ownership of a company. Though stocks are thought to be riskier than some investment opportunities, they are notoriously known for outperforming assets such as bonds or savings accounts. Historically, they have achieved an average return of around 10 – 12 per cent over the long-term.
There are two main classes of stock: these are known as common or preferred. As the name suggests, common stock make up the vast majority of shares available and are generally considered to entail the most risk. Indeed, if the company goes bankrupt, shareholders do not receive any money until the creditors, bondholders and preferred shareholders are paid – this could potentially leave the common shareholder out of pocket. On the plus side, being a shareowner entitles you to a portion of the company's profits, so if the going is good – and/or you own a larger proportion of the shares – you could potentially reap a worthwhile return.
By owning stock(s) you are also entitled to one vote per share when it comes to electing the board of directors at annual meetings. So while having shares doesn't give you any power in the way the business is managed, your voting rights means you do have an opinion in who is in charge, and by association, the direction of the company.
Preferred stocks, however, don't usually afford the shareholder the same rights, so if this is important to you as an investor, it is crucial to choose ventures that do allow you to vote. The other aspect to take into consideration is the way in which the money is paid out – unlike common shares, investors are usually guaranteed a fixed lifetime dividend, which could be ideal if you are looking for a safe, consistent income for retirement.
In addition to these two main types, it is possible to invest into a customised share – a system that is designed to allocate rights to different groups. Thus, if you come across stocks that have been broken down into Class A, Class B, Class C and so on, seek guidance from an Independent Financial Adviser. At the very least, approach with caution; you don't want to get caught out. When deciding upon which type of stock to invest in, it is always worth considering the option of a collective investment scheme. This is where shares are pooled into one investment to maximise returns and minimise tax.
There are a number of different companies that you could potentially invest in both in the UK and internationally, and though larger, more renowned companies are usually the first to be considered, there are plenty of opportunities to be had in smaller businesses, including dental practices.
Indeed, as long as a practice is a limited company, there could well be shares up for grabs across the profession. So how do you go about it? To purchase, there is a tax of 0.5 per cent on the transaction and depending on whether it is completed electronically or by using a stock transfer form, a stamp duty reserve tax or stamp duty will also be required – though the latter only applies if the transaction is over £1,000.
If you're looking to make a much larger investment, say buy a dental practice, this could be achieved if you take over as main shareholder from the principal. Indeed, if a practice owner is looking to sell, they will usually do so through selling their stock – as more often than not they own the majority, if not all of the shares. In doing so, the buyer becomes the main owner of the practice.
Unfortunately, a share sale can often be more complicated than the sale of a practice's assets, so it is always wise to seek the advice of an Independent Financial Adviser, such as those at money4dentists.
All in all, buying, selling and owning shares present a number of opportunities for a dental professional looking to make an investment or expand/diversify their portfolio. With so many factors to take into consideration, however, and so much that can go wrong, it is best not to go at it alone.
For more information please call 0845 345 5060, 0754 DENTIST, email firstname.lastname@example.org or visit www.money4dentists.com