Frequently Asked Questions about Stock Market Investing

Investing means allocating your savings to financial products, becoming an investor, with the goal of obtaining a return in the future. Instead of keeping your capital static, you place it in financial instruments to seek a profitability that compensates, among other things, for the effect of long-term inflation. At ABANCA, we help you plan your investments to align them with your personal or family goals, always keeping in mind that investment products are subject to market fluctuations and can generate both gains and losses on the invested capital.

Diversification consists of distributing your capital among different types of financial products, as well as across various economic sectors and geographic areas… The goal of this strategy is to avoid concentrating risk in a single alternative. In this way, if the performance of a particular investment is not as expected, the others can help mitigate the impact, more effectively protecting your overall financial health.

The risk profile is like your "thermometer" as an investor. It is the measure that tells us how much risk you are willing to take with your investments and how you would feel if the value of your investment temporarily dropped. At ABANCA, before providing you with advisory or portfolio management services, we analyze your situation to determine your risk profile by conducting a suitability test, resulting in one of the following:

• Conservative Profile: Designed for those who want to preserve their investment, with the possibility of accepting a loss of up to 5%.
• Moderate Profile: Aims for investment growth with a moderate expected return, accepting a loss of up to 10%.
• Decisive Profile: Seeks a high expected return on investment, assuming that to achieve this, the risk level may be high, and losses of up to approximately 15% may occur.
• Aggressive Profile: Pursues the highest possible return, regardless of the fact that the risk may increase significantly and be very high (even above 15%).

Additionally, the suitability test also serves to determine your investment horizon, investment objectives, and sustainability preferences.

At ABANCA we offer various investment product options, but the most common ones to start with are:

• Investment funds: Collective investment institutions where the contributions of multiple investors are managed by professionals (management companies of collective investment instruments) to diversify across different markets and with various levels of risk. There are different types of investment funds; many are not traded on markets, while others are, such as ETFs (Exchange Traded Funds).
• Securities: Direct purchase of company shares (equities) or debt securities (fixed income) in financial markets.
• Pension plans: Long-term savings and investment products specifically designed to supplement retirement benefits.

The main difference lies in the predictability of returns, the nature of the product, and the risks assumed:

• Fixed income: Works like a loan that the investor makes to a public institution, government body, or private company in exchange for an agreed-upon interest and the repayment of the principal on a specified maturity date. It offers greater predictability in cash flows, although it generally provides lower return potential and is not free from credit and liquidity risk. Additionally, the price at which a fixed income security can be sold in the market before its maturity will be affected by interest rate movements and the time remaining until the security's maturity.
• Equities: Involves acquiring shares of a company. It does not guarantee a return or the repayment of the invested capital, as the economic outcome depends solely on the company's performance and market fluctuations. It offers a higher long-term return expectation in exchange for assuming volatility and, therefore, a substantially higher risk.

An investment fund is a vehicle that pools money from numerous investors so that a professional management team (management company) can invest it in a diversified way across different assets (stocks, bonds, etc.). It allows access to global markets, risk management, and the benefits of economies of scale. You can choose different types of funds according to your risk profile, investment horizon, or return objectives. For more information about funds and how to select the most suitable one for you, visit our page What are investment funds?.

ETFs (Exchange Traded Funds) are financial instruments whose shares are traded on the stock exchange in the same way as a stock, some of which track the performance of a benchmark index (such as the Ibex 35 or the Euro Stoxx 50). Their main features are:

• Immediate trading: Unlike traditional investment funds, whose net asset value is calculated at the end of the day, ETFs can be bought and sold on the market in real time during the trading session.
• Competitive management costs: As they are usually passively managed products that track an index, their management fees are generally lower than those of actively managed funds. However, it should be noted that trading incurs brokerage, commission, or custody fees.

The fundamental difference lies in the nature of the product, the management model, the concentration, and the risks assumed:

• Stocks: As an investor, you individually choose the specific company in which you want to invest. The return obtained will depend exclusively on the financial performance of that company and its stock price. In this case, the risk is highly concentrated in a single asset.
• Investment funds: The capital is pooled into a common fund managed by professionals (management company), who distribute it among a wide selection of companies, sectors, and countries, in accordance with the fund's investment policy. This model provides automatic diversification, reducing the impact that the negative performance of a single asset would have on the overall portfolio.

The choice depends, among other things, on your financial goal and the time frame in which you need to access your capital:

• Pension Plans: Specifically designed for retirement, they offer the tax advantage of reducing your contributions from the taxable base of your personal income tax (IRPF). They are illiquid; the capital can only be withdrawn upon retirement or in exceptional cases regulated by law (such as long-term unemployment, serious illness, or contributions older than 10 years).
• Investment Funds: Allow you to request redemption at any time at the corresponding net asset value, which will fluctuate according to market conditions and may result in losses or gains.

At ABANCA, we want you to have total control of your money in the most convenient way possible. To track the progress of your positions, you have the Online Broker within our online banking platform. From there, you can check the status of your portfolio in real time, view transactions, and analyze the performance of your assets. Additionally, if you prefer a more personal approach, your advisor will always be available to explain any details about your investments.

Depending on the product you want to invest in, the risks you assume will be of a different nature. The main risks are:

1. Market risk: the risk that the price of your assets falls due to the economic situation.
2. Liquidity risk: the risk that you cannot sell your investment just when you need the money.
3. Credit risk: the risk that the entity that issued the financial asset does not meet its payment obligations and does not return the interest or the invested capital.
4. Interest rate risk: the risk that changes in official interest rates affect the value of your investments. For example, if interest rates rise, the price of the bonds you already own usually falls.
5. Currency risk: the possibility of suffering losses due to fluctuations in the exchange rate when you invest in assets denominated in a foreign currency.

Investing always involves an element of uncertainty, and it is essential that you are aware of this.

The main advantage of looking to the future is the ability to overcome short-term market volatility. By keeping your investment for the long term, you can benefit from the effect of compound interest, which consists of reinvesting the returns obtained to generate new capital flows cumulatively. This strategy helps to dilute the impact of short-term market fluctuations or corrections, although it does not guarantee positive returns nor does it eliminate the market risk associated with the product. Additionally, you will need to consider whether your time horizon is long-term or rather short- or medium-term.

The main risk control tool is diversification, which consists of distributing capital among different asset classes, economic sectors, and geographic areas to reduce correlation and exposure to a single negative event.

Additionally, the ABANCA Online BrokerYou will be redirected to another website allows the introduction of risk management orders, such as loss limitation or stop-loss orders. These instructions automate the sale of an asset if its price falls below the specified threshold.

You should keep in mind that, in cases of extreme volatility or lack of counterparties in the market (gaps), the actual execution price may differ from the established limit.

The main difference lies in who makes the decisions.

• In active investing, a team of expert managers constantly analyzes the market to try to "beat" it and achieve above-average returns.
• In contrast, passive investing simply aims to replicate the performance of an index, which usually results in lower fees since it requires less human intervention.

They are two different philosophies for choosing where to put your money.

• Value investing consists of looking for solid companies that the market is undervaluing; that is, identifying companies whose assets or businesses are trading below their estimated intrinsic value.
• Growth investing focuses on companies with great potential for future expansion, even if they seem expensive now, expecting their profits to grow well above average.

Diversification is not just about acquiring several independent assets, but about choosing assets that do not behave the same way in response to the same events. Smart diversification at ABANCA includes:

• Assets: combining stocks, bonds (fixed income), and funds.
• Geography: investing in different countries and currencies to avoid relying on a single economy.
• Sectors: spreading capital across technology, healthcare, energy, or consumer goods, among others.

Of course! Combining strategies is a common practice in wealth management to seek complementarity in portfolios. At ABANCA, you can allocate part of your capital to passive investment funds and another part to active management or specific strategies such as value investing to look for specific opportunities.

At ABANCA, we believe that investing should be accessible to everyone. The minimum amount to start investing at ABANCA depends on the investment product you choose; consult your advisor to find out which one best suits your contribution. You have the option to set up regular contributions, which allows you to build your investment portfolio month by month, adapting it to your budget and lifestyle.

Opening your account is a quick and transparent process. You can do it in two ways:

• From your ABANCA App or Online Banking: Go to the investments section and follow the steps to open your securities and/or investment fund account.
• At your branch: If you prefer personal assistance, make an appointment at your nearest ABANCA branch and one of our advisors will take care of everything for you.

To start operating, the required documentation is minimal. If you are already an ABANCA client, we will only need:

1. Your DNI or NIE updated.
2. Proceed with your classification under MiFID regulations.
3. Signature of the Securities Custody and Administration Agreement.

Of course! With the ABANCA Online BrokerYou will be redirected to another website, you have total control in the palm of your hand. Through our App or website, you can buy and sell shares, subscribe to, redeem, or transfer investment funds, or check the performance of your assets anytime and anywhere.

To operate through ABANCA, it is important that you know the opening hours of the stock exchanges. The Spanish continuous market, Ibex 35, and the main European stock exchanges usually operate from 09:00 to 17:30. If you are interested in the US market, such as the Nasdaq or the NYSE, the hours are usually from 15:30 to 22:00 Spanish time.

These are approximate hours; you can find out the schedules of the different markets online or by consulting your advisor.

Remember that, even if the market is closed, you can place orders to be executed as soon as it opens, bearing in mind that for market orders, the initial execution price will correspond to the market opening price, which may differ from the last closing price.

It is a very intuitive process. Once you access your ABANCA Online Banking, you just need to follow these steps:

1. Search for the stock or company you want to invest in.
2. Select the "Buy" or "Sell" option.
3. Enter the number of shares or the amount in euros.
4. Choose the order type and confirm the transaction with your security code.

That's it! You will receive a confirmation as soon as the transaction has been executed.

The Online BrokerYou will be redirected to another website is your digital tool for managing your investments independently. It works seamlessly within your online banking (web or App), allowing you to check real-time quotes, analyze charts, and manage your portfolio without having to go anywhere. It's like having a direct window to stock markets around the world, open 24 hours a day so you can decide when and where to trade.

At ABANCA, you can customize how you want your investment to be executed to protect your money. The most common types are:

• Market order: executed immediately at the best available price at that moment.
• Limit order: allows you to set a maximum price for buying or a minimum price for selling. The order will only be executed if the market reaches or improves upon that threshold. If the available volume at that price is insufficient, execution may be partial or suspended.
• Best price order: entered without specifying a price, automatically taking the best price offered by the counterparty at the time of receipt. If there is not enough volume to complete the order at that initial price, the remainder will be limited to that price in the order book.
• Stop orders: used to limit losses by automatically selling if the stock falls below a price you choose.

Investing involves some costs that you should be aware of in order to calculate your real return. At ABANCA, the most common ones are:

• Buy/sell commission: The cost for each transaction you make on the stock market.
• Custody commission: For the maintenance and administration of your securities in your account.
• Fund expenses: Investment funds include a management fee and a deposit fee, as well as other implicit costs, which are already deducted from the fund's daily value. In addition, some funds may have other explicit costs, such as subscription and/or redemption fees. Before signing up, you will always have access to the prospectus as well as the costs and expenses document with the exact details of each product, in order to guarantee transparency and prior knowledge of the costs.

For individuals, the gains from your investment products are taxed under the savings tax base of the Personal Income Tax (IRPF) and are divided into two categories according to tax regulations:

• Investment income: Direct income such as stock dividends, interest from deposits, or income from distributing funds (reduced by administration and deposit fees).
• Capital gains and losses: Profits generated from selling shares or redeeming investment fund units, calculated as the difference between the sale value and the acquisition value.

Accumulation investment funds allow for tax deferral: you do not pay taxes as long as your money remains invested or if you transfer between funds. You will only pay taxes when you finally sell your units. Keep in mind that both investing in securities (stocks) and investment funds involve risks and you may lose the capital invested.

Most of these incomes are subject to a 19% withholding tax at the time of payment. When you include the tax data provided by ABANCA in your tax return, the corresponding tax for the different incomes obtained will be calculated and the amount already withheld will be deducted.

For individuals, the gains from your investment products are taxed under the savings tax base of the Personal Income Tax (IRPF) and are divided into two categories according to tax regulations:

• Investment income: Direct income such as stock dividends, interest from deposits, or income from distributing funds (reduced by administration and deposit fees).
• Capital gains and losses: Profits generated from selling shares or redeeming investment fund units, calculated as the difference between the sale value and the acquisition value.

Accumulation investment funds allow for tax deferral: you do not pay taxes as long as your money remains invested or if you transfer between funds. You will only pay taxes when you finally sell your units. Keep in mind that both investing in securities (stocks) and investment funds involve risks and you may lose the capital invested.

Most of these incomes are subject to a 19% withholding tax at the time of payment. When you include the tax data provided by ABANCA in your tax return, the corresponding tax for the different incomes obtained will be calculated and the amount already withheld will be deducted.

Investment funds have a unique tax advantage: tax deferral. This tax deferral regime is exclusively applicable to investors who are individuals with tax residence in Spain. This means you do not pay taxes as long as you do not withdraw your money through a redemption of shares; that is, you can make a transfer (move your money from one fund to another) without having to pay the tax authorities for the profits accumulated up to that point. You will only be taxed when you make a final redemption to your current account, which allows you to make the most of compound interest.

To understand the real impact of expenses on your investment, you should look at the TER (Total Expense Ratio), which includes management fees, deposit fees, and other operating expenses of the fund. These costs are already factored into the fund's reported returns. If the product has explicit costs, you will need to deduct them from its return.

These are the two main ways to analyze where to invest.

• Fundamental analysis studies the "health" of the company: its profits, its debts, who manages it, and its sector; it seeks to determine the company's real value.
• On the other hand, technical analysis examines price charts and historical volumes with the aim of identifying trends and statistical behavior patterns.

At ABANCA, we believe that both can be complementary to gain a complete perspective.

Indicators and ratios are the analysis of an investment: they give us quick data to know if something is going well.

• Ratios (such as the P/E ratio or dividend yield) help you compare companies objectively to know if they are expensive or cheap.
• Chart indicators (such as moving averages) help you detect if it is a good psychological moment to buy or sell according to market sentiment.

When reading a report, pay attention to three key points:

1. The Thesis: Why the analyst believes the market will move in a certain direction.
2. The Target Price: The value the expert believes the stock will reach.
3. The Recommendation: This is usually "Buy," "Hold," or "Sell." Remember, these reports are a guide to help you decide, but the final decision always rests with you according to your personal goals.

At ABANCA, we love that you want to learn about Investment and the Stock Market, and for that, we have different channels:

• Cuentas Claras Blog: On our Cuentas Claras blog, you will find useful information about investment and the stock market.
• Online BrokerYou will be redirected to another website: Direct access to daily analysis and real-time market news so you don't miss a thing.
• ABANCA's Smart Investment Podcast: If you prefer to learn by listening, we recommend our podcast Smart Investment. Here, we break down current economic events and investment tips in an enjoyable and simple way.
• Your advisor: Remember, you can always visit your branch to resolve any questions; we are here to help you invest with knowledge and complete confidence.