Investing basics

Uriziel

Can someone explain the benefit of the population investing for a country?
If I understand correctly someone buying stock on Trade212 does not give the company any money. It does not somehow help a company grow more since any of the money people "invest" does not go to them. There are a lot of companies with a stock price in the cellar and they are still massive and still continue working, paying their staff and producing products. Their stock is just not popular.

Did I miss anything?

masonic

You are right that investing in shares involves one market participant selling them to another, so there is no cashflow to the company.

What you may be missing is that investing in equities is beneficial to the individual if they do so rationally and with a long term view. It is a benefit when more people in the population grow their personal wealth and are therefore bigger consumers and better able to provide for their own future.

It happens to be a similar reason many on this forum encourage others to invest, although we are probably not thinking of tax revenue and welfare consequences in the same way.

Baldytyke88

If you take the FTSE 250, over the last 12 months its value increased by 5.3% when you add dividend returns, that takes it to over 8%

Better than most investment accounts.

Eco_Miser

Uriziel said:

Reeves says that she wants the population to invest more but I do not understand why.

Can someone explain the benefit of the population investing for a country?
If I understand correctly someone buying stock on Trade212 does not give the company any money. It does not somehow help a company grow more since any of the money people "invest" does not go to them. There are a lot of companies with a stock price in the cellar and they are still massive and still continue working, paying their staff and producing products. Their stock is just not popular.

Did I miss anything?

Sometimes the company issues new shares and sells them on the Stock Exchange, so the Trade212 investor might effectively be buying new shares and contributing to the company's capital. Or the company sell new shares by tender. Many of those who tender for the new shares do so in the expectation that they can sell them on in the market at a profit.  

This works better when there are lots of market participants interested in buying the shares.

But I think the main reason this is being pushed is the reason Rachel gave - the returns to the individual tend to be considerably better than savings accounts.

It also gives the workers a chance to own the means of production and distribution.

kermchem

Isn’t the idea that if the UK population buys the shares of UK companies then this will push up the price of those shares, and this will be a “good thing”. Just remember how much of the FTSE100 are companies making money overseas but selling their shares in London. 

eskbanker

Uriziel said:

Reeves says that she wants the population to invest more but I do not understand why.

Can someone explain the benefit of the population investing for a country?
If I understand correctly someone buying stock on Trade212 does not give the company any money. It does not somehow help a company grow more since any of the money people "invest" does not go to them. There are a lot of companies with a stock price in the cellar and they are still massive and still continue working, paying their staff and producing products. Their stock is just not popular.

Did I miss anything?

From another thread in the same vein:

eskbanker said:

Shylock_249 said:

I’d like to know how it would “help” the government if I invested 20k in S&S as opposed to 20k in savings?

“She wants to see people investing more in British stocks because it’s good for growth and it generates better returns for savers,” one ally of Reeves said.

The argument is that investing in UK businesses stimulates growth and in turn this leads to wider economic benefits, including increased employment and lower welfare costs, more tax revenues, improved balance of trade, expanded secondary supply chain activity, etc, etc.  Of course, many UK businesses derive significant income from activities in other countries, so the effects are less pronounced for these....

https://forums.moneysavingexpert.com/discussion/comment/81692013/#Comment_81692013

masonic

I don't really buy the argument that encouraging retail investors at this sort of level is going to change the fortunes of the underlying companies. Over the long term, valuation will drive their share prices and this is dictated primarily by institutional money.

Perhaps at the bottom end of the market (e.g. AIM) it could have an effect if people were driven to invest there, but that would go hand in hand with increased volatility and people losing their shirt. If people do what is typical, and buy the index or what they know (e.g. businesses they encounter in their everyday lives), then I doubt it will have any material effect.

Whereas the argument for it being good for them personally is a much stronger one in my view.

Aretnap

It's true that Random Person A buying shares from Random Person B does not directly benefit the company whose shares they are. However higher demand for shares, and this higher share prices does benefit the company, and the economy more generally, by driving investment. It does this in a number of ways:

An established company which wishes to raise cash to invest can do so by issuing more shares and selling them on the stock market. Obviously they can raise more money more easily if there is demand for their shares and their share price is high.

Or they might issue bonds, which are also traded on the stock market and are often ultimately bought by retail investors (generally via bond or mixed asset funds rather than directly)

Additionally venture capitalist investors who invest in start ups get their money back by selling their shares - eg when the company floats on the stock market - then reinvest the money in new start ups. More demand for shares and higher stock market prices means more floatations and more VC money being recycled into new start ups.

So maybe you're not buying from Random Person A, maybe you're buying directly from the company, or from a venture capitalist exiting their position in a successful start up. And even if you're not, the fact that you've just snapped up Random Person A's shares means that Random Person C will have to buy his shares from the company or the VC instead.

wmb194

Uriziel said:

Reeves says that she wants the population to invest more but I do not understand why.

Can someone explain the benefit of the population investing for a country?
If I understand correctly someone buying stock on Trade212 does not give the company any money. It does not somehow help a company grow more since any of the money people "invest" does not go to them. There are a lot of companies with a stock price in the cellar and they are still massive and still continue working, paying their staff and producing products. Their stock is just not popular.

Did I miss anything?

The hope is that people will become richer vs saving in cash.

A healthy secondary market is critical for a healthy primary market - people need to think that they can sell millions of pounds/dollars/euros worth of shares whenever they need to. The primary market includes IPOs, rights issues and the issuance of debt. The bond market and availability of financing to companies is often overlooked in this discussion.

artyboy

There's also an aspect of incentivizing new listings in London, something the LSE hasn't done a great job of in recent years. If there are moves by the government to 'encourage' more money into UK listed shares then it will be used as part of the sales pitch when companies are deciding where they want to list...