Stocks: How to start investing

What is a stock?

A stock represents partial ownership in a company. A corporation issues ownership shares of the company, known as stocks. Buying stocks occurs in exchanges such as Nasdaq Helsinki (OMXH), London Stock Exchange (LSE), or Nasdaq Stockholm (OMXS). When you buy stocks, you are buying a part of the company and, for example, are entitled to dividends paid by the company and to vote at shareholder meetings.

Return on stock investment

Essentially, there are two types of stock investors. Some investors look for undervalued companies that pay good dividends, preferring so-called value investing. Others select companies based on strong growth prospects and seek returns from the increase in stock value.

Example 1: Stock price increase

You buy 100 shares of Equity Oyj at €10 each, and in two years, the stock value rises by 14%. Thus, your investment's value has increased from €1,000 to €1,140. You decide to sell your shares and realize the profit, which in this example is €140 (Value of your ownership at the time of sale – Value of your ownership at the time of purchase).

Example 2: Dividends paid on stocks

You buy 50 shares of Equity Oyj at €5 each. The shareholders' meeting decides on a dividend payment of €0.20 per share. Since you own 50 shares, you receive a dividend of €10, and the dividend yield is 4% (dividend per share / purchase price of the share x 100). Investors in value companies primarily seek returns from dividends paid to the company's shareholders.

Taxation of stocks

In both examples, returns on stocks are subject to capital gains tax if the stocks are held in a regular book-entry account. Tax on capital gains is approximately 30–34%. About 15% of the dividends from listed companies are tax-free, hence the tax payable is about 25.5%-28.9%. Taxes on the equity savings account are only paid when money is withdrawn from the account. It's important for dividend investors to note that the tax-free portion of the dividends is not available in the equity savings account, but withdrawals are subject to regular capital gains tax.

Learn more about the differences between a book-entry account and an equity savings account

This material is general information and does not constitute a complete description of the investment objective or of the risks involved. Before deciding to invest, customers should familiarize oneself with the characteristics, risks and taxation of the investment.

Investments always involves financial risk. Customers may not obtain the return sought and they may lose some or all the capital invested. It is worth remembering that past performance is no guarantee of future results. Customers must base their investment decisions on their own assessment of the financial instrument and the risks involved, as customers are ultimately responsible for the financial implications of their investment decisions.

This material does not constitute an individual recommendation, and the information provided is not related to the investment objectives, financial situation or specific needs of any individual customer. While every effort is made to provide information that is as accurate and correct as possible, the Bank does not guarantee the completeness or accuracy of information obtained from external sources. The views expressed represent the Bank’s estimates at the time of the preparation of this material and are subject to change without notice. The Bank shall not be liable for any costs or losses arising from the use of the information contained in this material.

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