Sarah Poynton-Ryan 0:01
Money matters. I wish that I knew tall when I was an investor, a business owner and a money educator, understand it better compound international budget investment to recover from debt. No one explained to me that your money to align us at work is about normalizing the conversation. I

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Sarah Poynton-Ryan 0:27
Mechanics, it's Sarah Poynton here, investor, business owner and money educator. And on this episode of The Money Mechanics podcast, we are going to be talking about the difference between stocks and shares and investment funds. So I'm going to talk a little bit about the pros and the cons of some of the core parts of them, but let me explain what they are. First of all, so a stock and a share, actually, the phrases are used very much interchangeably. They do mean different things, but in the UK especially, we use the words interchangeably. So I wouldn't worry too much about the difference. If we're buying a stock in or share of Coca Cola, you're buying a single part of a single company. So buying a stock, I use this analogy in the book. Buying a stock is like buying a single rose, right? A single stem of a flower where funds you're buying a bouquet of flowers, right? So you're buying, if you buy into the s, p5, 100 fund, you are buying a small share of 500 different companies. So the difference is that with funds, you're very diversified, so you own the bouquet of flowers. If one flower fails in a bouquet of flowers. It's not the end of the world, right? You've still got loads of other flowers, whereas if you single stem rose wilts and dies, that's it. You've got it. You've got nothing. So it's the same as stocks and shares. If the company that you've invested in you've bought a stock in, goes bust, they don't perform their management drops the ball. Whatever it is, your stock may go down in value or disappear completely, potentially, whereas with a fund, and again, I'll use the S, p5, 100 as the example, you've got 500 different companies that you're actually you own a part of. When you own 500 different companies, it matters less if one company goes bust, because you've got 499 other companies to buffer the storm, right? So that's the basic differences between the two funds are way more diversified than a singular stock, I think, when you look at risk and diversification. So because of the the ability to buy into multiple companies at once, it would definitely be argued that a stock is a higher risk strategy than a fund buying into a fund, and that's purely because you've got that diversification layer built into your choice. But also, usually with a stock investment, you would buy your own stock, so you'd go on to free trade. And we've we've we've talked about free trade in other episodes, I'll put a link to the free trade platform with this video. You would go into free trade, and you would select Coca Cola, ExxonMobil, Pfizer, GSK, whoever, and you would buy the stock, and you would manage that yourself, right? Whereas, with a fund, it's lower risk because it's diversified, but often you're buying into a fund that is managed by somebody else. So because of that professional management, it can, in some cases, be deemed as slightly lower risk because you've got a professional someone who is, in fact, a you know, fund manager, managing that portfolio for you, and you buy a share in that particular fund that is then looked after by somebody else. Now there's costs and fees associated with both, and again, let's talk about that. Because when you buy a stock, there's usually a one time transaction fee, whether you use free trade or trading 212, or how Greece Lansdown, or wherever it is, usually when you buy a ExxonMobil stock or Coca Cola stock or whatever company, you pay a one time transaction fee at the point you buy and sometimes also at the point that you sell. So you know, you can kind of predict that you're going to have those transaction fees, whereas with a fund, because they're managed by somebody else, sometimes there's a management fee that's also applied. This totally depends on the type of fund you choose and who it's managed by, and all of those sorts of things, but it's possible that there'll be additional fees when you choose to go down the fund route. And what you can do whenever you go into free trade, you select the fund or the stock that you're interested in. If you just scroll down the screen a little bit, there's all of the like the small print, and it says things like transaction costs, management fees, any charges, anything like that that you need to know about. So it's always good. To take a look at those things so that you can actually predict what's going to be happening in terms of your going in and also exiting on your investments. Now, if you're somebody who is who wants to be quite hands on, so I'm pretty hands on with my portfolio, like I like to do the research and choose and then if I see, you know it's hit my increased target. So for example, let's say I buy a stock, and I know that if my stock goes up by more than 20% I will that will then trigger a decision for me, do I want to sell that stock and take that profit? That's me personally, not investment advice, by the way. You might have specific goals. So every stock I buy if it hits a certain threshold of uplift, I will consider selling to take that profit. But ultimately, whatever your investment strategy is, if you're a hands on investor, like I am, stocks and shares are can be a really good option, because you are quite involved. It is quite hands on. You can buy them and leave them long term, but it let you know it's something that's you're probably going to want to check in on it on a regular basis. Whereas, with a fund, it's much more hands off, because you've got that fund management layer to it, you can just buy a share of the S, p5, 100 and leave it for 20 years. You don't really have, I mean, you probably would check on it in 20 years, but you don't really have to. So if you're you're looking for instant diversification and a pretty hands off long term. You know, thing that sits in the background, then funds generally, is where people would go. If what you want is a bit more of a hands on watching of the market, you want to be a bit more involved, then I'd say actually stocks and shares are there. And you know, the risk that goes with both the risk appetite is probably slightly higher if you go for singular shares than funds, because that bouquet of flowers, single flower example that I gave earlier. Now, I think the other things to consider here are that the opportunity, right? So when you select a single share in a single company, so let's say you pick Tesla, for example, or let's say you'd picked Nvidia a year or so ago, right? Nvidia shares have gone up by like 800% in the last, I'm not actually sure how many months, but you know, in the last maybe year, let's say they've absolutely rocketed. Well, there's higher potential growth opportunities when you select individual stocks, because funds are more long term and they're more stable in the way that they perform, and because it's so diversified, those big, massive hikes, they don't happen as often, if at all. Whereas when you pick really well with a stock, and you time it right, and you know, you might do that intentionally, you might do that by accident. Often it happens by accident. If you're a beginner, you are able to ride that wave, so you've got that potential for growth and opportunity is slightly higher when you select a stock versus when you select a fund, because funds are inherently quite, you know, they tick along, they're they're old faithful. That's kind of how we describe them. You've then got the liquidity aspect of things. So this liquidity is like how quickly you can actually buy and sell, how you quickly even get your cash out with stocks and shares. You're you're highly liquid. You can literally click a button and you can sell it now, so you can get your cash straight away. With mutual funds, sometimes they only trade at certain times of the day. So again, not all, but again, when you're doing your research and you're selecting them, make sure you read this stuff that sits in a small print because they may only trade at the end of every trading day. They may only allow people to buy in and sell at the end of a trading day. You know, it exchange traded funds. And again, we've talked about this in other episodes, but, and it's detailed very heavily in the book, the difference between mutual there is a difference between mutual funds and ETFs, but ETFs are a bit more liquid than a mutual fund would be, but neither are as liquid as a stock would be. So it's just important for you to read the small print as you're choosing, so that you know that your money's not tied up and locked in, in anywhere, anywhere if what you want to do is buy and sell, buy and sell, buy and sell, because you won't be able to do that if it's locked in. I think as well in terms of accessibility, you buy an a Coca Cola stock today. If you were to do it right now, it would cost you. Let's give you exact as of today's date, it would be 70. $70 $70.68 right? That would give you a Coca Cola stock. And I could click this button and I could buy it right now, with stocks and shares, you've got what's called fractional shares, and you've got whole shares, you can buy Coca Cola on fractional. Shares. You can buy Altria fractional shares. You can buy meta, which is Facebook fractional shares. But there are some companies where you can only buy full shares. So for example, you can only buy

I've got Rio Tinto is one of my investments. You can only buy full shares of them. Barrett homes, which is a development company, you can only buy full shares for them. So the accessibility for different companies is different. Fractional share means you could buy like point 0001, of a share, not full shares. You can only buy one full share. So if the S p5 100 currently to buy a buy into the S p5 100, you'd need 81 pounds and 31 pence. If you had 20 quid, you couldn't buy 20 pounds of the s, p. You could only buy one full share of 81 pound 31 whereas with Coca Cola, because it's fractional, if you had 20 quid, whilst it's $70.68 right now, if I had 20 quid, I could buy 20 pounds worth of and I would get fractional shares in Coca Cola. So the accessibility is different for each and again, you need to check that out as you're doing your research and find out what's what. If you can buy fractional shares, it means you can always get your money invested. So even if you've got like, 40 P knocking about in your account, you can put it somewhere. It can be doing something, rather than it just sitting there, not doing anything, I think, as well with funds, quite often, what happens is they have a minimum investment level, not always, but one of one of the reasons I actually got into all of this right in the beginning was in 2007 maybe early 2018 I'd built my businesses. I'd cleared my dare. I'd got a big chunk of money, actually had six figures in the bank, and what I wanted to do was go and invest it outside of property, because I already had my property stuff ticking along, and I wanted to diversify. So I went and I met with fund managers, and I had a really interesting experience, right? So I went to city, London, and I sat with some fund managers. And I mean, I'm, I'm a girl that hangs out in jeans and trainers most of the time hoodies. You know, I'm pretty chill today. I'm in a fancy blazer, but most of the time I'm in hoodies and jeans. And I went to my meetings just as me and I sat and I talked to these fund managers, and we were talking about minimum investment levels and so on. And I was like, yep, that's absolutely fine. So absolutely fine. When it came to actually investing, it was very they made it very, very difficult for me to invest, like they didn't really want me to invest. Now, I don't know if that was because I was in jeans and trainers, or because I was a girl, or because, you know, I wasn't particularly old at that point. These are, like, real, like, older men in the City of London. I don't know if my face fitted, or whether it did. I don't know, but whatever reason, they never really allowed me to invest, and it was that actually that triggered my need to want to learn how to do this myself. Because I was like, Oh, well, I'm not going to let some doffy Old man in London tell me that I can't invest my money and make it work for me. So I learned how to do it myself, but with fund managers, what they generally will tell you, and what these guys told me in London is that there was a minimum amount of money that I could invest. And in some cases that's six figures. Some cases it's seven, eight figures, depending on the funds that you're dealing with, it's very rarely less than six figures. So some funds, it's fine, like I can buy into the s, p5, 100 now today, with 80 pounds, 80 pounds and 31 pence. But if you want to go into those like mutual funds, where their funds are pooled, and you've got investment fund managers, actually, you need a minimum amount. So it's not necessarily accessible to entry level people, people that probably most of the people watching this podcast, to be honest. Um, you know, you've probably not got 50 grand, 100 grand, 200 grand, and otherwise, you know, you probably know a little bit more when you've got a fund manager and a minimum investment and costs to manage. All of that impacts your ability to actually get started. So just do the research on it. I think as well, it's important to mention, with stocks and shares, they they both bring taxable income. Okay, so capital gains taxes will apply to any money that you make from investing in stocks and shares or in funds. The you know, the more control you've got over the numbers and the physical seeing of what's going on, the more hands on you can be with that the bet, you can report that sometimes a fund manager might trigger capital gains even if you didn't sell your shares. Whereas with stocks, if you sell a share, you'll be you'll have a tax liability because you've sold your asset, you've had a capital gain. Whereas if you hold them again, this is not tax advice, ladies and gentlemen, speak to your tax advisors, but if you hold your asset and you don't you don't sell it, typically, in the UK, as we speak today, there wouldn't be capital gains applied to that. So tax implications is also something that you need to consider when it comes to choosing whether you go for funds or stocks and which ones. So to summarize all of that, you know, I've run through that. Super quick today. But what I think is a good idea for you to really think about is, what is your risk profile? How diversified Do you want to be? Do you want a single stem rose, or do you want a bouquet of flowers? Or do you want a bit of a mix of both? I'm definitely someone that has a mix of both. I mean funds, multiple funds. I mean dividend funds as well, which we talked about in another episode, you need to think about and discuss with yourself, or whoever you're investing with, which route do we want to take when you take into account all of those things? Again, I can't give investment advice, but what I also I do believe as investors, is we need to make sure we're always mitigating the downside. What is the worst case scenario, if I lost this money, or if this stock went to this much money, or, you know, dropped in value by x, how would I feel? What would the impact be on my life? Would it destroy me to lose the money? And that's how we're choosing. We're always applying those risk factors with the reward factors, the opportunity against the cost the Diversified versus the singular. And actually, what that will do, when you think about those things, is you'll be able to choose which one is the right one for you. So hopefully that's helpful. If you've got any questions around stocks, shares, whether you should go for funds or single, please comment on the video. Please drop me a DM. Please message me whatever platform you're on if you're watching over on YouTube, please make sure you hit the like button subscribe to the channel so we can keep you up to date with all of our announcements and future episodes. If you're listening in on audio only, please do leave us a five star review and spread the word. Help us to spread the word around Money Mechanics. I've been Sarah Poynton, and this has been the Money Mechanics podcast. You

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