Investing guide for beginners

What you're actually buying

A share is a small slice of a company. If the company grows its profits and more people want to own it, the share price tends to rise. Some companies also pay part of their profits to shareholders as dividends.

A fund (an ETF on Trading 212) is a basket of many shares, often hundreds or thousands, bought in one go. Index funds simply copy a market such as the S&P 500 or the whole world, so you get the average result of all those companies.

You make money in two ways: the price going up, and dividends. You lose money when the price falls below what you paid. If a single company fails, its shares can go to zero, which is why spreading your money matters.

In short: Shares are slices of single companies; funds are baskets of many. Both can fall as well as rise.

Spreading your money with funds

Diversification means not relying on one company, one industry or one country. A global fund like a FTSE All-World or MSCI World fund holds thousands of companies across dozens of countries.

Many long-term investors keep most of their money in one or two broad, low-cost funds and, if they want, a small slice in individual shares they've researched. That way one bad company can only do limited damage.

Accumulating (Acc) funds reinvest dividends for you, so your pot grows. Distributing (Dist) funds pay dividends out as cash. Neither is better; it depends whether you want income now.

In short: A broad, low-cost fund is the simplest way to spread risk.

Risk, swings and time

Share prices go up and down every day. Volatility measures how much. A global fund might swing around 10 to 15% in a typical year; a single tech stock can swing 40% or more.

Over short periods, losses are common. Over long periods (think 5+ years), the stock market has historically tended to grow, though there are no guarantees and some periods were poor for a decade.

Only invest money you won't need for several years. Keep an emergency savings pot in cash first, so you're never forced to sell when prices are down.

In short: Time is your friend; money you need soon belongs in savings, not shares.

Costs that quietly eat returns

Trading 212 doesn't charge commission on Invest and ISA accounts, but other costs still apply. Buying something priced in another currency costs a 0.15% FX fee each way. Buying UK shares usually carries 0.5% stamp duty. Funds charge a yearly fee (the ongoing charge), taken from the fund's value.

Fees look tiny but compound. On £10,000, a 0.2% fund fee costs about £20 a year; a 0.8% fee costs about £80, every year, growing as your pot grows.

Ways to keep costs down: prefer low-fee index funds, buy the listing priced in your own currency when there's a choice, and avoid trading in and out often.

In short: Small percentages add up: check fees and currency before you buy.

Your brain is the biggest risk

Most beginners don't lose money by picking the wrong company. They lose it by buying after a big rise (fear of missing out) and selling in a panic after a fall.

Write down why you're buying and what would make you sell, before you buy. If the price falls but nothing on your list has happened, a falling price alone isn't a reason to sell.

Check your portfolio less often, invest a fixed amount on a schedule (pound-cost averaging), and be most careful when everyone around you is excited.

In short: Decide your reasons and sell rules while you're calm, and stick to them.

ISAs and tax basics (UK)

A Stocks and Shares ISA lets you invest up to £20,000 each tax year (6 April to 5 April) with no tax on gains or dividends. The allowance is shared across all your ISAs and doesn't roll over.

Outside an ISA, you may owe Capital Gains Tax on profits above the annual exempt amount, and tax on dividends above the dividend allowance. These allowances have been cut in recent years, so check the current figures on gov.uk.

For most UK investors starting out, using an ISA first is the simplest way to keep things tax-free.

In short: Use your ISA allowance first; outside an ISA, gains and dividends can be taxed.

Using Stock Fit Finder well

Match scores compare stocks against the settings you choose. They describe; they don't predict. A high score means the figures match what you asked for, not that the price will rise.

Research reports show the evidence on both sides and the profile a company or fund matches. Use them to learn and to check your own reasoning, then make your own decision.

The decision panel, journal and alerts are there to slow you down at the moments emotion takes over. You place any trades yourself in Trading 212, and nothing here is personal financial advice.

In short: Use the app to research and check your thinking; the decision is always yours.

Glossary

Basics

Share (stock)

A tiny slice of ownership in a company. If the company does well and others want to own it, the price tends to rise.

Fund / ETF

An ETF (exchange-traded fund) holds lots of shares or bonds in one product you can buy like a single share. It spreads your money across many companies.

Trading 212

Market order

Buy or sell straight away at whatever the current price is. Simple, but you don't control the exact price, especially when the market has just opened.

Limit order

Buy or sell only at a price you set or better. If the price never gets there, nothing happens.

FX fee

Trading 212 charges 0.15% to convert your money when you buy or sell something priced in another currency, for example a US stock with a GBP account.

Fractional shares

Buying part of one share, like £5 of a £300 share. Trading 212 lets you do this for most stocks.

Pending order

An order waiting to be filled, usually because the market is closed. It runs when the exchange next opens.

Delayed price

Free data feeds show prices 15–20 minutes late. The real price may have moved since.

Valuation

P/E ratio

Price divided by a year's profit per share. A P/E of 20 means you pay £20 for every £1 of yearly profit. Lower is cheaper, but fast growers usually have high P/Es.

Forward P/E

Like P/E but using the profit analysts expect over the next year instead of last year.

Price / book

Price compared with the company's net assets on paper. Below 1 means the market values it at less than its assets.

PEG ratio

P/E divided by expected growth. Around 1 or below suggests the price is reasonable for the growth on offer.

Market cap

The total value of all a company's shares: price × number of shares.

Analyst target

The price professional analysts think the share will reach in about 12 months. They are often wrong; treat it as one opinion.

Growth

Revenue growth

How much more the company sold than a year earlier. Sales growth is harder to fake than profit growth.

Earnings growth

How much profit per share changed from a year earlier. Can swing wildly after one-off events.

Beating forecasts

When a company reports more profit than analysts predicted. Regular beats suggest a business doing better than expected.

Income

Dividend yield

Yearly cash payouts as a percentage of the share price. A 4% yield pays about £4 a year for every £100 invested.

Payout ratio

The share of profit paid out as dividends. Over about 75% leaves little room if profits dip, so the dividend could be cut.

Ex-dividend date

You must own the share before this date to get the next dividend. Buy on or after it and the payout goes to the seller.

Funds

Accumulating vs distributing

Accumulating (Acc) funds reinvest dividends automatically, so they grow your pot. Distributing (Dist) funds pay dividends out as cash.

Fund fee (ongoing charge)

What a fund charges each year, taken from its value. 0.20% costs £2 a year on £1,000. Small differences add up over decades.

Top-10 weight

How much of the fund sits in its 10 biggest holdings. Lower means your money is more spread out.

Quality

Free cash flow

Cash left after running the business and investing in it. It's what pays dividends and debts, and it's harder to dress up than profit.

Profit margin

How many pence of profit the company keeps from each £1 of sales.

Return on equity

Profit compared with the money shareholders have put in. Higher means the business uses its money efficiently.

Debt / equity

Debt compared with shareholders' money. Lots of debt makes a company fragile when times get hard.

Current ratio

Short-term assets divided by bills due within a year. Below 1 means it owes more short-term than it has to hand.

Quality rating

How strong the business is: margins, return on equity and debt, compared with the other stocks on the list.

Risk

Volatility

How much the price swings. 30% a year means a typical year ends within about ±30% of where it started, and bad years go further.

Biggest fall (drawdown)

The largest drop from a high point to a later low. It shows how painful holding it has been.

Risk appetite

How much price swinging you're comfortable with. Low favours steady stocks; high favours big movers.

Short selling

Borrowing shares to sell, hoping to buy back cheaper. Over 10% of shares sold short means many investors expect a fall.

Diversification

Spreading money across many companies, countries and types so one failure can't sink you. The simplest way is a broad fund.

Trading

Momentum

Whether the price has been rising recently. Trends often continue for a while, but not forever.

Liquidity

How much trades each day. Heavily traded stocks are easy to buy and sell at a fair price.

Moving average (50 / 200-day)

The average price over the last 50 or 200 trading days. Above the 200-day usually means a long-term uptrend; below suggests a downtrend.

RSI

Relative Strength Index, 0–100, measuring how fast the price has moved recently. Above 70 traders call 'overbought', below 30 'oversold'.

Psychology

VIX fear index

A measure of how much US investors expect prices to swing. Under 15 is calm; over 30 is panic.

Fear and greed

Markets swing between fear (selling in panic) and greed (overpaying in excitement). Both lead to poor decisions.

FOMO

Fear of missing out: buying because a price is rocketing or everyone's talking about it. Common reason people buy at the top.

Loss aversion

Losses feel about twice as bad as equal gains feel good, so people hold losers too long and sell winners too early.

Pound-cost averaging

Investing a fixed amount on a schedule. You buy more when prices are low and less when high, with no timing decisions.

This app

Match score

0–100: how closely a stock's figures match the settings you chose, compared with the others on the list. It's information, not a prediction or a recommendation.

Closest profile

Research reports test a company or fund against fixed checks for common investing styles (long-term hold, income, growth…) and name the one its figures match best. It describes the investment; it doesn't say whether it's right for you.

Growth rating

1–5: revenue and earnings growth compared with the others on the list.

Value rating

1–5: how cheap the stock is on P/E, price/book and EV/EBITDA compared with the others.