A share is a type of ownership of a company. When you buy shares you become a part-owner of a company and share in the future profitability of that company.

You can buy shares directly via the stock market or indirectly, through a managed fund which invests in shares on your behalf.

Direct Shares can provide regular income through the payment of dividends and may also provide capital growth through increases in share prices.

Who owns shares?

Almost every working Australian owns shares through his/her employer superannuation fund.

The number of Australians investing in shares has risen markedly since the 1990s . In 1991, only 15% of Australian adults were shareowners whereas now, leaving aside employer superannuation, more than 55% of Australian adults own shares.*

An increasing number of public floats and ready access to market information has fueled this growth, with the number of first-time investors entering the sharemarket continuing to rise.

Types of share ownership

Share ownership can be divided into two categories:

• Direct ownership - where you buy shares, usually through a stockbroker, or



• Indirect ownership - where you buy units in a managed investment which invests in shares.

*Research shows that 23% of adult Australians own shares directly, 11% own shares indirectly and 21% own a combination of both.

Understanding the Sharemarket

The sharemarket is simply a market like any other in which buyers and sellers come together. In this case, people come to the sharemarket to buy and sell shares. In Australia, this market is known as the Australian Stock Exchange (ASX).

There are more than 1,873 companies listed on the ASX. It is the 8th largest sharemarket in the world, and the second-largest in the Asia-Pacific region (on the basis of domestic capitalisation at 31 December 2005).

Monitoring the performance of your share investment

If you follow movements in the sharemarket, or you own a share investment, you've probably heard of the All Ordinaries Index. You may also have read about fund managers outperforming their various 'benchmark indices'.

What is an index?

An index measures the change in value of a particular group of investments over time. For example, the All Ordinaries Price Index, the headline index which accounts for 98% of the Australian Sharemarket, is a measure of the price of the shares of the major companies listed on the ASX.

The other popular Australian index is the All Ordinaries Accumulation Index. This index measures the total return of the share price movements and dividends (assuming these dividends were reinvested to buy more shares). As dividends are an important feature of a sharemarket investment, the Accumulation Index is a much better gauge of medium-to-long-term total performance.

The price and accumulation indices measure the performance of the same companies and record this performance in 'points'. When the All Ordinaries was established in 1980, the price index was valued at 500 points and the Accumulation Index was valued at 1,000 points. As at 1 June 2006, the Accumulation Index was valued at more than 37,600 points. The growth of the index represents the growth in the total value of shares traded on the ASX.

New benchmark indices

Over time, the All Ordinaries Index has emerged as the key tool for the investment community. However, on 3 April 2000 the ASX introduced new ASX/S&P indices to promote flexibility, greater choice, liquidity and lower turnover.

As a result of the changes, the All Ordinaries Index is now considered an umbrella index, with six ASX Benchmarking Indices beneath it. From this date, the All Ordinaries Index has increased from approximately 251 companies to the largest 500 stocks by average market capitalisation. Its main purpose is to measure the performance of the market. The six Benchmark Indices use liquidity as the fundamental criterion for determining the stocks to be contained.

* ASX Australian Shareownership Update, 2004

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