One of Freetradeās priorities is to introduce people to investing for the first time so there will be lots of users in this community who are completely new to this. Luckily we have an awesome community made up of experienced investors too, who love to share their knowledge. Ask them your questions here
If youāre looking for more info about investing, check out our collection of blog posts & topics from the community thatāve been written for first time investors in this Introductory Wiki.
P.S. if thereās lots of discussion about your question, we may move it to itās own topic, to help other users find this answer to your question too & also, help make the discussion easier to follow
Letās start with shares. Shares are the certificates that form companyās capital and distributed across shareholders.
If you buy 3 shares of Apple, you could either say you own ā3 shares of Appleā or you own āApple as a stockā. Therefore, stock is the fact of ownership of any given company, whether it is a single share or a million of share certificates.
Freetrade have also created a great blog post on it, do not hesitate to have a look:
If there is anything else or something you found is not comprehensible, just give us a shout and we will digest it
What changes the price of a stock? From what I know there is an IPO where say the shares trade at 10Euro each and there are 1mil shares sold to different buyers. If the company or shares doesnāt pay dividents (btw do the share type specify that no dividents will be payed or itās up to the company?) even if the company is succesfull what is the incentive for someone 1 year later to say that they want to buy your shares for 12EUR? Itās only the incentive that some day the company itself would like to buy itās own emitted shares(so the voting decisions are controlled by less people?).
Very good and complex question here and could be interpreted a couple different ways. I think what youāre really asking (but correct me if wrong!) is āwhy do stocks increase in valueā.
The answer is that if you buy a stock you (hopefully) become a part owner of a business with inherent and (again hopefully) growing value. That value could be expressed in dividends as you say - essentially a cut of the profits.
Btw dividends are ultimately decided by the company board. Theyāre not obligated by the type of share you buy but sometimes different share types (A, B) will have different dividend rights.
The stockās value could also be deferred to a point in the future by reinvesting profits for growth or kept within the company as big chest of cash. But youāre still an owner of that value. And someone might want to buy that bit of value from you. If the company seems to have grown more value you should get more than what you paid.
Share buybacks are a way to return money to shareholders but generally thatās the main priority rather than reducing the amount of votes in the company.
(It can also sometimes be to ward off takeovers by reducing the number of buyable shares.)
Hi all. Totally noob question. Whatās the difference between a fund and an index? So for example the Vanguard Lifestrategy is an ETF right? The FTSE 100 is an index. Theyāre both a collection of companies arenāt they?
Worth noting thereās a difference between an index and an index fund.
An index is just a data set really: a group of companies that satisfy certain rules eg āone of the top 100 U.K. companiesā.
An index fund is a fund set up to invest in the companies within an index. People can invest in the fund but they donāt literally invest directly in the index.
An index fund can actually be structured as a mutual fund or an etf. Itās a broad definition that can include both of them.
The index funds I think @Vlad refers to are the fact that the first index funds were set up by large institutions and werenāt open to regular investors. Again these were structured as trusts or mutual funds and donāt have any deep, strategic difference from other index funds. The managers just didnāt open those particular funds to everyone.
The thing is that there are about as many types of funds as you can imagine and almost all of them come in unique flavours. Itās really difficult to generalise about what a type of fund does based on just structure: whether itās an etf, mutual or trust.
So I guess judge each fund by its individual merits.
Perhaps this isnāt the right place for this question, but are there any investors out there willing to take any beginners under their wings? Like Iād love to sit and watch somebody check the markets and explain what different thing are and what they mean etc.
Whether that will continue, no one knows for sure but if you are 25 for example and have decades of investing ahead of you, you could benefit from the wealth creation that the stock market can provide. Thatās assuming that you also have a long time horizon of course - so youāre not planning to buy a house with the money that youāre investing in 2 years, for example.
On your 2nd question, the only āright timeā would be when itās right for you, based on your sentiment, analysis and research. What you could do is decide if you will āaverage downā (i.e. buy more, so the average price you pay for the stock or ETF is lower) or set a price or % change in the price when you will sell, ahead of time, as a strategy to manage your emotions. Rather than just reacting impulsively to price movements.
Newbie question here - I presume that this would be a potential response to a stock (a share?) decreasing in value? Presumably youāre āaveraging upā (if thatās a thing) if the share price goes up?
So Iāve been reading my way through the fantastic introductory wiki. Lots of questions come to mind (Iāll be back!), but I was wondering about this line from What Even Is a Stock?:
In an IPO, the current private owners arenāt necessarily selling their shares ā in fact, often they legally canāt for some time.
Iād naively assumed that in the event of, say, Freetrade IPOing, then all the original investors would be bought out - with any tax liabilities that that entails. Iām now assuming thatās not the case - and the private shares can be translated to listed ones. Is that right? If so, is there a tax implication for this transfer? Would you be able to wrap the newly listed shares in an ISA, for example - or would you need to sell them first? On the timing issue, does anyone have any insight about why private owners might be prohibited from selling shares? Would this be agreed / voted on as part of the prep for IPO? Maybe to ensure share price stability?
(Also, random probity question: would the Freetrade platform be able to trade Freetrade stock, assuming that itās listed on, say, AIM? Are there any conflict of interest issues? Iām assuming not, but it crossed my mind and Iām curious! )
I canāt comment on exactly how this would work if / when Freetrade goes public at this point but as a general rule, yes, private shares can be switched to public shares.
Iād have to do a more thorough check before I can answer the tax / ISA questions too Iām afraid.
As you say though, sometimes founders are prohibited from selling their shares, thereās often a ālock-up periodā for employees shares. But investors may also want key employees to stick around, to help ensure that the company keeps up itās good performance. Snapchatās CEO committed to not selling any of his shares for 9 months after they went public, for example. Although unfortunately he didnāt manage to save the share price
But itās something you should think carefully about, because by purchasing the stocks individually, you could expose yourself to more potential risk as you wonāt get the benefit of the diversified/risk weighted portfolio that Vanguard will manage.
Edit - also forgot to mention, if you buy VHYL (or any other ETF) in the open market, you donāt have to make the minimum investment that Vanguard ask for, the minimum is simply the price of one share of the ETF (plus any applicable fees)
Just to give you a heads up - unfortunately this isnāt one of the ETFs thatāll be available when we launch. You can see what weāre initially planning to offer Stock Universe. So please do request this one & any others that you want to invest in here
Ah! Sorry I misunderstood, I thought you were suggesting buying the individual stocks that were being held in the fund, instead of buying the ETF. Youāre totally right if you buy VHYL through a trading platform, you will buy the same mutual fund offering from Vanguard, just without having to go through Vanguard themselves, but as @Freetrade_Team1 said, itās not going to be in the initial Freetrade universe, so you might have to shop around for something else until itās available - some inspiration for you here & below
100% and one of the hardest things to do when starting off.
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