Hi, I am a young Italian (I guess the "poste Italiane" gives it away uh) and I plan to make my fist small experiments to understand how buying stoks and ETFs works.
I tried to look around what all those acronyms and big words mean but usually the definition and explanations I found use other acronyms and big words and end up being mentally exhausting to follow.
As far as I understand An ETF is a group of companies that share a market and by shoving money in there (investing in the found is the right phrase I guess)
you either buy stocks
(which are just money you give the company to spend and after the profit is made it should give it back with a certain interest I think, right? How much interest and how often is a great mystery I have yet to solve)
or fractions of stocks
(what is the point of a stock being a certain price then???? If i can just buy a small piece of it???)
from one of the companies in the found
(randomly I guess, or according to a broker whims maybe idk)
and when the dividends are paid you can either get some money back or reinvested in the found.
Those ETFs are apparently more secure because they spread your money around multiple companies within multiple fields and I feel like I should invest more in those then in singular companies, is that right?
Also I'm planning to start with 50€ each month but if I feel comfortable enough I plan to rise the investment to maybe 300€ monthly, but I often see people saying that for those amounts of money (which are a fuckton to me) you should just dump in a single ETF and forget about it for like 10 years, but it feels so wrong to put so much money into something with risks attached to it and then ignoring it, is there something else I'm not getting? (As opposed to all the other things I'm understanding perfectly, right?)
A few thoughts for you:
when you buy a stock, you are buying a tiny part of an individual company. When you buy a mutual fund, you are buying into a collection of companies put together by whoever runs the fund. They charge a fee for this service, baked into the cost of the funds, which is disclosed in the fine print but you may not notice if you don't know where to look. Those are often priced once a day. An ETF is simply a mutual fund that is traded like a stock.
"Index" funds and ETFs are popular because they are meant to mimic the performance of an index (like the S&P 500), so there are very few investment choices to make - so, their managers can't charge as high a fee.
Generally speaking, when you buy a stock or fund you don't owe any tax on it until you sell, and then you only owe tax on the portion that it increased. (So, if you bought at $100, and sold at $120, you may get a form that said you made $20 in income). But some stocks pay dividends, and some mutual funds buy and sell stocks which result in a "paper gain" for the fund even if you didn't sell. Be aware of how this all works in your country. (And, in particular, don't ignore any forms they send you, read it all to find out if it affects your taxes!)
Bank deposits often have some government guarantee, where if the bank goes under the government will make sure you don't lose your money. Stocks are not like that. You can buy stock in a company, and see it go bankrupt later. It's stock might go worthless without you even selling it. That's another reason why some people stick to mutual funds, though, because it spreads out risk a bit more.
Stocks are priced strictly by supply and demand. Who is buying, and who is selling? Since you are buying shares in actual companies, it is possible if you understand how to read financial reports to find out which stocks are "cheap" and which are "overpriced". But, in order for the stock to actually go up, there need to be more people buying, for whatever reason.
I hope this helped. Good luck!
I noticed the fees I think, in the app I'm using (traderepubblic) are listed as small yearly percentages (like 0.07% yearly and some founds go up to 0.60% does that feel right?) and a 1€ fee for "services" also annually.
For taxes I'm somewhat lucky that traderepubblic and the way taxes works in my country makes everything almost automatic for me, but I'll keep an eye out for weird things
I am 500% certain that I have absolutely no idea on how to actually understand if a stock is too cheap or too expensive, so I will definitively not try to do it for the foreseeable future lol
Thank you for your answer!
So, your broker may charge a fee just to trade. If you buy an individual stock, there are usually no fees beyond that.
I did some digging and came up with this S&P 500 fund which claims to be traded on several European exchanges, and yes, it's fee is listed as 0.07% yearly. But you will never see a bill for that. Instead, it will be quietly taken out of the fund, and at the end of the year your fund will be worth 0.07% less.
On the other hand, an actively managed fund (where they make particular investment decisions) might have a 1% or 2% fee....