Holding securities is an excellent way to make a good passive income. Shareholders have a great opportunity to receive interest from operations of large companies (in proportion to the number of securities acquired), participate in meetings to analyze a company’s financial activities and choose areas of strategic development.
However, a share acquisition is related to certain risks: it is possible that a shareholder will not receive the percentage of profit he or she expects. Financial crises and political upheavals can influence a company’s operations.
Working with investment funds and experienced brokers informed about the most liquid resources will allow shareholders to reduce their potential losses.
Nonetheless, when working with consultants and securities intermediaries, you should take reasonable care and make inquiries about the intermediary you decide to make a securities purchase (sale) agreement with, before entering into any agreements. Professional participants in the securities market must be licensed by the Central Bank of the Russian Federation. You may always check with it both for information about a company or a professional participant in the securities market and on the Bank of Russia website: www.cbr.ru.
In addition, it would not be inappropriate to look at information about the membership a professional participant in the securities market in professional associations, or its experience, insurance, or customer feedback on the Internet.
Risks of purchasing ordinary and preferred shares
Ordinary shares are purchased to save and protect money from inflation. The cost of shares can change due to conditions on the securities market, and you can sell or exchange them. Holding these shares does not ensure income — it depends on company’s progress.
Preferred shares provide guaranteed dividends paid regardless of the company’s profit. Ordinary shares have the possibility of payment after a general shareholders meeting (as a rule, it is an annual meeting on the results of the year). This risk implies making an informed decision that should lead to carefully considered investing activities.
The increase in market values of securities encourages potential holders to acquire these resources. Profit is divided among shareholders according to the number of shares.
It is important to remember that a diversified portfolio of ordinary shares reduces downside risk significantly in the long term.