Ask your beginners questions here 🐣


(Alex Sherwood) #1

One of Freetrade’s 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 :point_down:

If you’re looking for more info about investing, check out our collection of blog posts & topics from the community that’ve been written for first time investors in this Introductory Wiki.

P.S. if there’s lots of discussion about your question, we may move it to it’s own topic, to help other users find this answer to your question too & also, help make the discussion easier to follow :raised_hands:


Introductory wiki 🐣
Important: Investor groups and flairs
(Chris) #3

Let’s go nice and simple.

What’s the difference between a stock and a share?


(Vladislav Kozub) #4

Nice question here, Chris.

Let’s start with shares. Shares are the certificates that form company’s capital and distributed across shareholders.

If you buy 3 shares of Apple, you could either say you own “3 shares of Apple” or you own “Apple as a stock”. 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 :wink:


(Alex Sherwood) #5

5 posts were split to a new topic: What can I learn from a company’s financial report?


(Alex Sherwood) #8

8 posts were split to a new topic: What do the bars on a share price graph tell me?


(Serban Balamaci) #18

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 doesn’t pay dividents (btw do the share type specify that no dividents will be payed or it’s 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? It’s only the incentive that some day the company itself would like to buy it’s own emitted shares(so the voting decisions are controlled by less people?).


#19

Very good and complex question here and could be interpreted a couple different ways. I think what you’re really asking (but correct me if wrong!) is ‘why do stocks increase in value’.

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. They’re not obligated by the type of share you buy but sometimes different share types (A, B) will have different dividend rights.

The stock’s 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 you’re 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 that’s 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.)


(Shae) #20

Hi all. Totally noob question. What’s the difference between a fund and an index? So for example the Vanguard Lifestrategy is an ETF right? The FTSE 100 is an index. They’re both a collection of companies aren’t they?


#22

Worth noting there’s 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 ‘one of the top 100 U.K. companies’.

An index fund is a fund set up to invest in the companies within an index. People can invest in the fund but they don’t literally invest directly in the index.

An index fund can actually be structured as a mutual fund or an etf. It’s 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 weren’t open to regular investors. Again these were structured as trusts or mutual funds and don’t have any deep, strategic difference from other index funds. The managers just didn’t 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. It’s really difficult to generalise about what a type of fund does based on just structure: whether it’s an etf, mutual or trust.

So I guess judge each fund by its individual merits. :ok_hand:


(Shae) #23

Perhaps this isn’t the right place for this question, but are there any investors out there willing to take any beginners under their wings? Like I’d love to sit and watch somebody check the markets and explain what different thing are and what they mean etc.


(Emma) #24

Will a policy of long term investing counteract any short term losses potentially caused by Brexit or Trump’s next tweet?

Is there a general rule of thumb on the best time to cut your losses and sell a constantly falling share/ETF or when to wait it out?


(Steve Sharrott) #25

Brilliant question! This situation, especially for a newbie like myself, would be a tortuous decision to have to make.


#26

Historically on a long enough timeline, the stock market beats cash.

For example, even if you bought at the peak of the last bull market in 2007, right before the crash, you would have more than doubled your money by now.

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. That’s assuming that you also have a long time horizon of course - so you’re not planning to buy a house with the money that you’re investing in 2 years, for example.

On your 2nd question, the only ‘right time’ would be when it’s right for you, based on your sentiment, analysis and research. What you could do is decide if you will “average down” (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.


#27

:point_up:️100% and one of the hardest things to do when starting off.


#28

Newbie question here - I presume that this would be a potential response to a stock (a share?) decreasing in value? Presumably you’re “averaging up” (if that’s a thing) if the share price goes up?


#33

So I’ve been reading my way through the fantastic introductory wiki. Lots of questions come to mind (I’ll be back!), but I was wondering about this line from What Even Is a Stock?:

In an IPO, the current private owners aren’t necessarily selling their shares — in fact, often they legally can’t for some time.

I’d 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. I’m now assuming that’s 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? :thinking:

(Also, random probity question: would the Freetrade platform be able to trade Freetrade stock, assuming that it’s listed on, say, AIM? Are there any conflict of interest issues? I’m assuming not, but it crossed my mind and I’m curious! :slightly_smiling_face:)


(Alex Sherwood) #34

I can’t 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.

I’d have to do a more thorough check before I can answer the tax / ISA questions too I’m afraid.

As you say though, sometimes founders are prohibited from selling their shares, there’s often a ‘lock-up period’ for employees shares. But investors may also want key employees to stick around, to help ensure that the company keeps up it’s good performance. Snapchat’s CEO committed to not selling any of his shares for 9 months after they went public, for example. Although unfortunately he didn’t manage to save the share price :grimacing:


#35

I’m new to investing. I was looking to buy some of Vanguard’s 'All-World High Dividend Yield ETF (VHYL). I was going to buy some individual shares using Freetrade rather than invest via the Vanguard website. If I buy individual shares will I still receive dividends? On the Vanguard website you need to have a minimum stake in many instances and buying individual shares seems like a good way to get around it. I was just wondering if I’d still get all the benefits.


(Tommy Lowe) #36

Yeah, you’ll still get your dividends :slight_smile:

But it’s something you should think carefully about, because by purchasing the stocks individually, you could expose yourself to more potential risk as you won’t 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 don’t 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) :raised_hands:


(Alex Sherwood) #37

Just to give you a heads up - unfortunately this isn’t one of the ETFs that’ll be available when we launch. You can see what we’re initially planning to offer Stock Universe. So please do request this one & any others that you want to invest in here :raised_hands: