Yorkshire Bank Information Guides
Money Leisure Retirement Family Home Career Business
Today more people than ever Still, many people find the
before have money invested market daunting, many don’t
in the stock market. In many understand what the stock
cases it is through a pension market is or how it works.
fund, a unit trust, or some may This Guide is designed to
have purchased their first help.
shares through the
privatisation of government A glossary of
History shows that becoming a
part owner in some of Britain’s
biggest companies can be a AIM
good long-term investment. This is the Alternative this Guide
We’re not only talking about Investment Market. It is run
• A glossary of key
wealthy investors, investors by the London Stock
with just a few thousand Exchange and lists smaller, stock market terms
pounds have a range of fledgling companies often • Golden rules
options open to them. making their first step into the
• Buying shares
• Choosing your
• Managed funds
• Investment clubs
Bear dividend means the holder
A Bear market is one where buys in time to receive the
share prices across the entire current year’s dividend.
market are generally, and
When the market price of a
Blue chip newly issued share is lower
This phrase is often used to than its issue price.
describe large well-
established companies with a
A company may pay all or part
consistent record for growth.
public market. This market of its profits to its
usually lists more speculative Bull shareholders. This payment is
companies and you should A Bull market is one where a dividend and it is usually
consider the risk carefully. share prices across the entire paid twice a year. Do not
market are generally, and expect all of a company’s
AGM consistently, rising. profits to be paid out in the
This refers to an Annual
form of dividends. Successful
General Meeting. As a Capital growth
companies often reinvest part
shareholder you will be While you will hopefully earn
of the profit to help grow in
entitled to attend the AGM income in the form of
the future. If the company is
and vote to approve accounts dividends from your share
struggling, it may decide to
and appoint directors. These portfolio, you may also
reinvest all of its profits; or
meetings are normally held experience capital growth.
This is when the value of your the company might not make
within 21 days after
shares increases from the a profit, in which case a
publication of the annual
price you paid. In this case, if dividend will not be paid.
you choose, you can sell the Before investing, check the
Annual report shares and reap any capital company’s dividend record.
As a shareholder you are gain. However, the stock Dividend income may be
entitled to receive the annual market does fluctuate and attractive, especially if you're
report which is a director’s shares can and do fall in a retiree relying on investment
report detailing the value. In which case, if you income.
performance of the company sell you will have made a Dividend yield
over the year and its current capital loss. The secret is Dividend yield is the dividend
financial position. research and wise investing. as a percentage of the share
We will talk more about that price. This ratio helps
shortly. measure the dividend return
Did you being received on the shares.
know… In the past shares were Equities
As this Guide will exclusively traded in the form This is another word for
explain, one of the of paper certificates. But now,
a computer system called
keys to successful Ex-dividend
CREST links banks,
stock market stockbrokers and companies, Purchasing shares ex-dividend
investment is to and handles the electronic means the holder does not
think long-term. The registration of a share receive the current year’s
purchase. If you buy and sell dividend. If you are selling
reason is this:
shares regularly you can shares ex-dividend you will
historically shares become a member of CREST still receive the dividend.
have outperformed which will allow you to hold
all other standard shares without paper
This is the date on or after
investment classes certificates.
which the seller and not the
over time. Cum-dividend buyer will retain the right to
Purchasing shares cum- receive a dividend.
An Introduction to the stock market
shareholder votes without
Did you know… needing to attend a meeting
by appointing someone else
Financial advisers say a proportion of your to vote on his or her behalf.
investment should go into cash and fixed Proxies can also be used to
interest as well as shares. If you rely on your transfer voting authority to
investments for income – as many retirees do –
you need some security. Rights issue
A company wanting to raise
extra funds may offer existing
Final dividend Gilts shareholders the right to buy
This is the dividend paid by a A stock issued by the
more shares in the company.
company at the end of its government to raise money
This is often done at a
financial year. known as a Gilt-edged stock.
discount to the price currently
FOOTSIE Interims listed on the exchange.
This is a colloquial term for A company's results for the
the FTSE 100 which is an first 6 months of the financial
This is another term for
index of the UK’s largest 100 year.
shares or any other paper
publicly listed companies.
Interim dividend investment.
This index allows you to
A dividend declared mid-way
measure market Settlement
through a company’s financial
performance over time. The transfer of shares and
year, authorised solely by the
money between seller and
Financial Times Stock
Exchange, the joint operation Share
An Initial Public Offering or
for compilation and Shares are traded on the
IPO is when a company first
maintenance of the indices London Stock Exchange. A
offers shares to the public. It
used as the key performance market place where public
is often also referred to as a
benchmarks for the UK Stock companies are listed and their
flotation or float. In some
Exchange. These include the shares open for trade. When
cases you will be able to buy
FTSE All Share index, you buy a share you purchase
directly from the company
FTSE100, FTSE Mid 250 & an ownership stake in a public
without going through a
FTSE Small Cap. company. This gives you the
right to vote at annual general
Nominal value meetings and you may also
A market within the London
The value ascribed to a share
Stock Exchange specifically
when it is first authorised and
designed for investment
companies and products.
issued by a company. Did you
Nominee account know…
If you hold shares A good accountant
The Financial Services
electronically they are
Authority is the body will advise you of
normally placed in a nominee
charged with the
account managed by a
the pros and cons of
responsibility of regulating stock market
stockbroker or financial
the financial services
institution on your behalf. investing. You may
Premium find you're better off
If the market price of a new with a share
An already listed company
share is higher than its issue portfolio in the non-
needing to raise funds may
release more shares into the working spouse's
market for the public to Proxy name.
purchase. A form by which a
receive part of the
company’s profits through Did you know…
payments known as
dividends. If the share price
The first golden rule of investing is to never put
rises, you may also see a all your eggs in one basket.
capital gain. However, if the
share price drops you may
Volume may choose to pool your funds
see capital loss.
The total number of shares with others. We will discuss
Share certificates traded (bought and sold) in a that option a little later.
Shares were traditionally held given period of time.
in paper form and some still 2. Take a long-term
are. A share certificate is the Golden rules view
proof that you indeed are the Research has shown that the
owner of the shares. If you 1. Diversify amount of time you hold on to
hold a share certificate and Based on past performance, your shares and stay ‘in’ the
decide to sell your the stock market offers stock market is much more
shareholding you will need to attractive growth over the important than the time when
deliver the certificate to the long term, but in the short you actually enter the market.
broker who sells the shares term it can be volatile. There Take a long-term view to ride
on your behalf. are also examples of what out the peaks and troughs.
were once successful
Stamp duty Short-term falls in share prices
companies which fall from
A tax of 0.5 per cent that is are part and parcel of investing
grace due to factors that may
payable when buying shares. in the stock market. Knowing
not have been apparent or how to read those falls is
Stockbroker which you may not have important.
A member of the London researched at the time of
your investment. That is why Two levels of influence usually
Stock Exchange who buys
one of the keys to successful affect share price movement.
and sells shares for clients.
We will discuss choosing a stock market investing is First is the overall economic
broker and fees later in this diversification. If you have climate. The level of interest
Guide. £10,000 to invest, it’s not rates, currency fluctuations
wise to buy just one stock – and general level of
you're better off with a confidence all affect share
A market within the London
selection. If you don’t have prices.
Stock Exchange relating to
enough funds to successfully
technology companies. Second are company-specific
diversify your portfolio, you
factors affecting each share –
such as cash flow,
This term refers to any
market where a stockbroker Did you company history, competition
can sell or buy shares and is
the most common way of
know… and debt level. When a share
price falls, shareholders should
investing in a company. The The second rule of
go back and review the
London Stock Exchange is a stock market company fundamentals.
investing is time-in, Decide whether the price drop
not timing. This is related to general or
means the more company-specific factors.
time you have in the The most important question
market, the more for investors is whether a fall
changes their overall view of
likely you are to ride the company. Look at whether
out any short term shares across the board have
fluctuations. been affected to the same
An Introduction to the stock market
You give the stockbroker or
financial institution the
authority to buy and sell
shares on your behalf within
an agreed set or parameters.
You should be kept informed
about the performance of your
investments with all
administration left in the
hands of the stockbroker.
You can choose any of the
above methods or a
combination of all three.
Choosing a stock broker
or financial institution
If you are considering buying
shares directly, you should
carefully consider the
certain value. So how do you organisation you choose to
Buying shares go about it? There are now trust with this responsibility.
Buying shares is a three basic options open to You need to be comfortable
specialised subject. you if you are buying shares with their level of expertise,
Institutional buyers for know the experience of the
pension funds and collective people involved, understand
investment schemes hire Execution only their level of research and
professional investment This is the cheapest way to what steps they will take to
managers and investment buy shares but the service understand your investment
analysts to undertake this on means exactly what it says. A needs.
their behalf. stockbroker or financial
Make sure you understand all
institution will act on your
Before investing as an charges up-front including
instructions to buy or sell but
individual you should be fully what commissions, or any
aware of the risks, the time they will not make any
other fees for other services
needed to carry out research, comment or offer any advice
you will be asked to pay.
the sum required and the about your decision. If you
Remember, the best
costs involved in maintaining are confident in making a
alternative may not be the
a diversified portfolio. decision without advice, then
cheapest, and make sure you
this is a straightforward way
It's never been easier or are comparing the same
to access the market. You can
cheaper for investors to buy a services. You will obviously
also trade online.
stake in our leading pay less for an execution only
companies. This is due to: Advisory service approach than you will for
• Electronic registration The stockbroker or financial receiving advice. The way you
replacing share certificates. institution will recommend hold the shares may also
• Bank account direct debiting which shares to buy and sell impact the fee; for example, if
of share payments. but the final decision remains you choose to hold a paper
• Buying and tracking of shares yours. The advice you are certificate this will normally
on the Internet. given should take into cost more than an electronic
account your own investment share holding.
When you buy shares you can
ask for either a fixed number goals and risk profile. By risk The London Stock Exchange
of shares within a certain profile, we mean the level of will provide a list of all
price range or buy any risk you are comfortable with authorised stockbrokers
number of shares up to a in making your investments. and their services. You can
contact the exchange on
020 7797 1000 or visit the
Did you know…
www.londonstockexchange.com One advantage of the best managed funds is
you get to borrow the brains of professional
Many stockbrokers will carry analysts. Plus, with billions of pounds to invest,
insurance to cover against they can get greater diversification.
negligence and you should
enquire about this and what it
covers. There is a Financial overnight. Investing in 'blue Are they capable? Are the
Services Compensation chip' shares is often directors well regarded? Will
Scheme (www.fscs.org.uk, or considered a good idea – they provide an objective voice
call 020 7892 7300) which these are big, stable, proven in management?
provides for people who have stocks. Their share prices
lost money through an usually grow slowly but
How old is the company?
adviser’s or broker’s fraud or steadily, providing a buffer
Does it have a history of
negligence. It covers a against market shocks that
consistent performance? Has
maximum of £48,000 no strike from time to time. Blue
it stayed in the same line of
matter how much you had chip companies usually have
business or diversified? If
invested. This figure is broken a continuous record of paying
diversified, is it successful in
down into 100% cover for the dividends, and so offer both
its new business?
first £30,000 and 90% cover steady capital growth and a
for the next £20,000. source of regular income. 3. Dividends
However, even with blue Has the company regularly
Another avenue open to a chips there are examples paid dividends in the past? If
disgruntled client is to take where companies have fallen not, why not?
legal action against the broker on hard times and investors
or adviser. This can be costly 4. Debt
have lost money. No matter
and if the person or firm is Companies in debt aren't
what the size or reputation of
bankrupt, may not produce a necessarily bad investments.
the company you should
result. Like individuals, companies
always do your research.
generally borrow to increase
Using the internet Don’t take a hot tip at face their opportunities for profit.
As mentioned, you can now value. Try to get independent However, the level of debt
trade shares on the internet. information to support the tip should not exceed the assets
However you should take – the best place to start is the of the company.
steps to ensure the service company itself. Ask for their
you are using is properly
most recent annual report.
Look for companies that
regulated. You can check the The law requires a lot of
dominate the market or fill a
authority of the stockbroker information about a company
niche in a bigger market.
or financial institution offering to be contained in these
Large, established companies
the service by calling the FSA reports. Broking firms also
usually win out over smaller,
on 0845 606 1234 or by write regular research reports
visiting www.fsa.gov.uk. on many shares. Ask your
broker for reports on Dividend decisions
Choosing your companies of interest. Share investors often choose
own shares What to look for
whether to take dividends in
cash or use them to buy more
Picking your own shares can When checking out any
shares through a dividend
be daunting, but there are company, there are five
reinvestment plan. Another
steps you can take to make common sense signs to look
choice is whether or not to
it easier. for:
take advantage of bonus
First, try and minimise risks. 1. Management shares. Let’s briefly look at
Don’t try to make a killing Look at the people in charge. these alternatives.
An Introduction to the stock market
management and invest in
markets you'd otherwise find
Did you know… difficult to access. The
You may bring the average cost of your investment professionals
investments down by a strategy known as 'employed' by you conduct
Pound cost averaging, you ignore market extensive ongoing research
into the financial performance
fluctuations and invest the same amount each
of individual companies and
period (say, monthly), regardless of unit price. specific shares, taking into
You take advantage of market fluctuations by account economic and market
receiving more units when the price is low and trends. They constantly
fewer when the price is high. monitor the market and adjust
the investment portfolio.
Depending on the investment
Taking dividends in cash the money to invest in other
fund you choose, you may
If you want income to live on, companies within the UK and
also get a stake in overseas
cash dividends may be your in many cases around the
markets. If you're doing it
best alternative. world.
yourself, you're unlikely to
• A Unit trust is a fund made
Dividend have the funds to access
up of investors who have their
reinvestment plans international markets.
contributions divided into
Some companies offer There are many different types
individual units. The managers
dividend reinvestment plans. of the trust then invest in the of managed funds. Some
Shareholders can buy shares, stock market, again this concentrate on fixed interest
in some cases, at a discount investment is either within the investments, others move
on the market price, without UK, globally or both. higher along the risk ladder
having to pay brokerage or • An Open Ended Investment with greater emphasis on
stamp duty. The tax Company (OEIC) is similar to share investment.
consequences of dividend a unit trust however it is a Your choice of managed fund
reinvestment plans are collective investment scheme should reflect:
complex, so seek professional in the form of a company. • The level of risk you’re
advice if you're considering Investors buy shares in an prepared to accept.
participation. OEIC and your money is • The ‘time factor’.
Bonus share schemes pooled together with other
For example, if you have 15 or
Sometimes companies offer investors interested in the
20 years to retirement, you
shareholders the dividend same portfolio of equities
can afford to be in a more
amount in bonus shares. As and/or property. The term
volatile fund with greater
with dividend reinvestment ‘open ended’ means that the
exposure to the share market.
plans, the tax consequences size of the company can go
If you're closer to retirement,
are complex so seek up or down, depending on the
then you should consider a
professional advice if you're number of people buying
more conservative investment.
considering participation. shares. In this regard they are
The bottom line is - speak to a
similar to a unit trust, but one
Managed funds key difference is that shares in
an OEIC are at a single price Another big advantage of a
One way to really simplify
for buyers and sellers. managed investment is the
stock market investing is to simplified paperwork. The tax
These funds invest your
use a managed investment details of direct shares can
money in the shares of a large
such as an investment trust, become quite complex.
portfolio of companies and
unit trust or OEIC.
across different asset classes. If you want to determine the
• An Investment trust is a In a managed fund you pool relative efficiency of a fund
company listed on the stock your money with other manager you should examine
exchange. You buy shares in individual investors. You its Total Expense Ratio (TER).
this company and it then uses benefit from professional fund You should be able to access
this figure through the the UK today, some are more way you invest in shares. For
brochures provided by the successful than others and example; pensions, many of
individual fund managers or you must ensure your club has which invest in the stock
their annual reports. rules which will be followed. market, have tax advantages.
These should help determine We will not go into detail here
Warning: Investing your
how members can come and about the various pension
money wisely is an
go, how funds will be invested schemes available but suffice
important step. This Guide is
not a replacement for and decisions made about to say many people are
independent and managing the investments. already investing in the stock
professional financial advice. market through a personal or
We could write an entire guide
This Guide is designed to on the pros and cons of occupational pension
help you understand the investment clubs. There are scheme.
advice you are given. You organisations that offer this However, there are ways to
should never invest before type of advice, one is ProShare save tax with direct stock
speaking to a professional. which is sponsored by the market investment as well.
London Stock Exchange. To You may put your shares into
Investment find out how you can get your what is known as an ISA
clubs club started you can contact
(Individual Savings Account) -
financial institutions offer
Investment clubs are
www.proshare.org or call these accounts and you will
becoming an increasingly
020 7220 1730. pay no income tax or capital
popular way to get involved
in stock market investment. gains tax on your dividends
Tax or profits from share
You may choose to start a investing. There are annual
Each person’s tax situation is
club with your family, friends limits to the amount you can
different and you should seek
or colleagues from work.
professional advice to invest in an ISA.
However, you should make
determine the most tax
sure everyone understands Again we stress that you seek
effective way for you to
the risks and parameters professional advice.
within which the club will Note: ISAs were designed to
operate. By taking a The following information is
replace another tax free way
professional approach at the based on existing tax
of holding shares, Personal
start you may avoid legislation, which may change
Equity Plans (PEP). You may
headaches in the future. in the future.
still hold a PEP but only if it
There are thousands of Generally speaking, you can was established prior to
investment clubs operating in save tax depending on the April 5 1999.
This Guide is produced by Life Directions Pty Ltd ABN 17 085 676884 on behalf of Yorkshire Bank. Yorkshire Bank is a trading name
of Clydesdale Bank PLC, which is authorised and regulated by the Financial Services Authority (FSA). Credit facilities other than
regulated mortgages are not regulated by the Financial Services Authority.
The preparation of this Guide did not take into account any individual objectives, financial situation or particular needs. Before making
any decision you should consider whether the information in this Guide is appropriate in light of your particular needs and financial
circumstances. If you want further information about any of the topics covered, and how they may apply in your circumstances you
should seek professional advice.
Life Directions Pty Ltd has taken all care in the compilation and presentation of the facts and information contained in this Guide and
the information was current as at 1 May 2005. However it is written as a general guide and is not intended to provide any financial,
legal or other professional advice. Nothing in this Guide should be treated as an authoritative statement on any particular topic or of
its applicability in any specific case. Action should not be taken on the basis of this Guide alone and specific professional advice
should always be sought before any action is taken.
Life Directions Pty Ltd, Yorkshire Bank and the companies in the National Australia Bank Group accept no liability for any errors or
All rights reserved. No part of this Guide may be reproduced without the prior permission of Life Directions Pty Ltd and Yorkshire Bank.
Yorkshire Bank is a trading name of Clydesdale Bank PLC. Registered in Scotland No.SC001111. Registered Office: 30 St Vincent
Place Glasgow G1 2HL.