What does it mean to be an investor?
Let’s look at what it really means to be an investor, and how you can use investing to connect to your underlying ethics, values, and preferences.
The concept of investing is simple—it’s when you try to turn some money you have today into more money in the future. But what does this actually mean? Where does your money go when you invest? How does it get used? What kind of impact do your investment choices have?
Where shares come from
In order to grow, companies need capital—which is just a fancy word for money. When companies want more capital, they have two main options: they can borrow money (from a bank, for example), or they can sell shares in the company.
When they create shares, they’re essentially creating little pieces of ownership in the company. If a company has 1,000 shares in total, and you own one of them, then you own 1/1000th of that company.
Companies can either issue shares privately, to specific people or organisations, or they can go public, which means anyone can buy and sell their shares.
Shareholders get dividends if the company gives its profits back to its owners, and they also get to vote on how the company is run. The more shares someone has, the more votes they have. This means that when companies sell shares in themselves, they get money, but in return, may give up some profits and control.
Who you buy shares from
When you buy a share, you’re usually buying it off another investor—rather than from the company itself.
It’s kind of like buying something secondhand on eBay or Facebook Marketplace. When you buy a car, a drill, or a dress secondhand, the money you spend isn’t going to the company that made that car, drill, or dress—it’s going to the last person who owned it.
Why share prices matter
Imagine you buy a share in Woolworths Group on the ASX for $35. Even though Woolworths doesn’t get that $35, the price you paid still matters to them. That’s because Woolworths will probably want to raise more money in the future.
Let’s say Woolworths wants to redesign and renovate some of their supermarket sites. Tradies, architects, and materials aren’t cheap, so Woolworths decides to issue some more shares to raise the money. The higher the share price, the fewer shares Woolworths has to issue to pay for its newly renovated supermarkets.
If a company’s shares are worth $1 each, and it wants to raise $1,000, it has to sell 1,000 shares. If a company’s shares are worth $1,000 each, it only has to sell one share to raise the same amount of money! (We’ve written about why shares change price before.)
So even though most day-to-day share sales don’t have a direct impact on the company you’re investing in, they do have a significant indirect impact.
Invest towards the future you want
Every time you buy a share, you’re sending a message. You’re saying that you expect and want this investment to be worth more in the future. You’re also saying that you want the underlying company to be able to raise money, invest in new equipment, and grow.
Invest to make a change
At the same time, investing gives you influence over companies that you’d like to see change. You can attend annual general meetings and vote. You can also band together with other like-minded investors and make your voice even more powerful.
For example, the Interfaith Centre on Global Responsibility buys shares in companies, then advocates for those companies to change their behaviour around issues like climate change, human trafficking, and sustainability. This means you can invest in companies that aren’t currently behaving in a way you support—but can change, if they get enough pressure.
This is an opportunity for people to use their investment choices today to potentially shape the way the world looks in 10 years, 20 years, or more. This can be done by investing in individual companies or exchange-traded funds (ETFs)—or also investing specifically into socially responsible (referred to as ESG) funds!
If your ideal world has more of company A and less of company B, you can work towards this world by investing in company A and declining to invest in company B. When you look at it this way, investing isn’t just a way to get a financial return, it’s a way to work towards the world you want. That’s the power that an investor can hold.
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.
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