Investment and Stock Market Guide

Investing is a useful tool to protect your capital against the impact of long-term inflation and to help you achieve your financial goals. However, you should remember that all investments carry risks, including the loss of invested capital or lack of returns. In this investment and stock market guide, we break down, from the most basic concepts to the most advanced products, the information you need to understand how to operate in the markets. Make sure you are clear about your objectives. If you have doubts about where to start, check what you need to invest

To make informed investment decisions, we must first master the basics.

What is a stock and how do you invest in the stock market?

A stock is a security that represents a proportional share of a company's share capital. By purchasing it, you become a shareholder (co-owner).

You invest through an authorized financial intermediary or broker, buying and selling these securities on secondary markets (such as the IBEX 35 or NASDAQ), seeking returns either through dividends or by the increase in the value of the stock itself.

Investing in stocks means you must be willing to take on a very high risk of losing your invested capital.

What is an investment fund and how does it work?

It is a collective investment instrument. The money of many investors, called participants, is pooled into a fund managed by professionals (management company) who buy a diversified basket of assets. Its main advantage is that it allows access to professional markets with small amounts.

Investing in investment funds involves various risks and, depending on the fund's investment approach and the assets it invests in, the level of risk will vary.

What is diversification and why is it key?

It is the strategy of spreading capital across different types of assets, sectors, geographies, and currencies with the aim of managing and mitigating the overall risk of the investment portfolio.

What does liquidity mean in investing?

Liquidity is the ease and speed with which you can turn an investment back into cash.

How does volatility affect my investments?

Volatility measures how much the price of an asset varies over a given period. High volatility implies greater price swings, which can lead to both a higher potential return and a significantly higher risk of suffering capital losses on the invested capital.

What is the difference between fixed income and equities?

• Fixed Income (such as bonds or bills): When you invest in fixed income, you are lending money to an entity (a government or a public or private company) in exchange for it being returned to you within a set period along with previously agreed interest. It does not give you any ownership or voting rights in the entity. You are only a creditor. It is issued with financial conditions known in advance and is not free from risks, such as the issuer's credit risk or the risk of price fluctuation in the secondary market if you decide to sell the security before maturity.

• Equities (stocks): When you invest in equities, you are buying a part of a company (stocks). By becoming a co-owner, your money evolves according to how the business and the economy in general perform. It does not allow you to know the future return, and prices depend entirely on market conditions.

Both fixed income and equity investments involve various types of risks, including the risk of loss of invested capital.

What is an investor risk profile?

It is mainly the combination of your financial capacity, that is, the relationship between the risk you are willing to take versus the expected return, your ability to bear losses, and your psychological tolerance to seeing your investments decrease in value. At ABANCA, we have the following risk profiles: Conservative, Moderate, Decisive, or Aggressive.

What is active and passive management?

• Active: A professional management team constantly makes buy and sell decisions with the aim of trying to outperform a benchmark market return.

• Passive: The investment strategy is limited to replicating the performance of a specific market index (such as the S&P 500), which usually allows for lower management fees.

What is an online broker?

It is the platform through which you can place your securities orders and monitor your investments.

ABANCA offers you its Online Broker to operate efficiently.

Remember that investing in financial markets involves operational costs (brokerage and custody fees) and the risk of loss of invested capital.

ABANCA offers you a variety of investment products and services, such as the following:

Investment Funds

Investment funds are versatile products where professionals manage your money. At ABANCA, we offer different funds depending, for example, on the level of risk and the possibility of losses you are willing to assume. More information about what Investment Funds are

Stocks

Buy shares in the world's leading companies. This requires close monitoring and a defined strategy due to price fluctuations and the possibility of losses on the invested capital.

ABANCA offers the Online Broker where you can manage your investments.

Delegated Portfolio Management

Delegated Portfolio Management is a good option for those who do not want or are unable to follow the market daily, delegating the management of an investment fund portfolio to ABANCA. We define your profile based on the results of the suitability test, and our team of experts takes care of managing your portfolio: we buy, sell, and adjust your portfolio to optimize the risk-return ratio according to your profile, bearing in mind that all investments carry the risk of capital loss.

ETFs or Exchange-Traded Funds

ETFs are exchange-traded investment funds. They are cost-efficient compared to traditional funds and replicate a listed index, with the same fluctuations, so they fully assume the risk and return of the reference market.

There is no such thing as an absolute "best investment"; rather, there is an investment that is suitable for each individual. To make the right choice, you need to objectively analyze your current needs and future goals.

Key factors for comparing investment products

To avoid getting lost, use these three decision pillars:

1. Risk level: Define how much you are willing to let your capital fluctuate and the level of loss you would accept in exchange for potential returns.

2. Time horizon: When will you need the money? The time frame is crucial: long-term investments have more time to weather volatility, although keeping your investment over time does not guarantee recovery of losses or ensure positive returns.

3. Diversification: Make sure the product does not concentrate all the risk in a single company or sector, or invest in a variety of assets.

4. Costs and fees: A 1% difference in fees can make a huge difference to your final profit after 10 years.

Investment doesn't end with the purchase; it's a living process. Knowing how to interpret what is happening in the economic environment will allow you to evaluate your strategy.

How to Read and Interpret Market Reports

A good analysis doesn't predict the future, but it explains the current market situation. When reading reports, pay attention to:

• Macroeconomics: Factors such as central bank interest rates and inflation. These are key variables that often directly influence macroeconomic valuations and the profitability of fixed-income assets (such as bonds).

• Corporate Earnings: This is one of the main factors that usually impacts corporate valuation and the trading price of shares on the stock market.

• Trends and Patterns: Identify whether global financial markets are in a bull cycle (structural growth) or a bear cycle (adjustment phase) to properly manage your expectations.

Practical Uses of Data in Your Portfolio

How does information influence your decisions?

• Portfolio Rebalancing: If an asset has experienced a significant increase, its percentage weight within your portfolio naturally rises. Analyzing this data helps you assess whether operational adjustments are needed to try to maintain your originally desired risk level.

• Reacting vs. Acting: A one-off negative macroeconomic figure should not alter a long-term financial strategy. Use data rigorously to confirm your initial investment strategy and avoid improvising in response to market fluctuations.

Common Mistakes When Investing

Identifying these mistakes in time can save you from major unforeseen issues with your assets:

1. Lack of diversification: Concentrating all your capital in a single asset or sector exponentially increases your risk. If that company or sector suffers, your portfolio will be affected.

2. Investing without a clear goal: Without a defined objective (retirement, buying a home, education), it is very difficult to choose the right investment product or time frame.

3. Acting on emotions: Acting hastily in response to market drops and rises often leads to buying high and selling low. It is better to carefully analyze the situation before making decisions.

4. Ignoring costs and taxes: Commissions, both from the products themselves and from services, as well as taxes on profits, directly impact your net returns. Don’t just look at gross profit.

5. Not reviewing or adjusting your portfolio: Financial markets change. A neglected investment portfolio can become unbalanced from its original allocations and may stop meeting your initial objectives.

6. Following non-professional advice: Unverified recommendations from third parties do not replace technical market analysis. Trust only duly verified and regulated financial sources.

Best Practices for Investors

1. Periodic review: Analyze your portfolio regularly to ensure it remains aligned with your risk profile.

2. Continuous education and informed decisions: Always understand the essential characteristics of the product you are investing in. Technical knowledge is the best tool to manage panic during volatility.

3. Diversify assets and time horizons: Spread your investment across different financial products to avoid concentrating risk in a single alternative.

4. Risk-benefit evaluation: Before making an investment, don’t just analyze how much you can earn; always consider how much you could lose in the worst-case market scenario, bearing in mind that all investments in financial markets carry the risk of capital losses or even total loss of invested capital.

5. Seek professional advice: If in doubt, consult experts. A professional financial advisor, such as those at ABANCA, will help you stay on track during uncertain times according to your risk profile, investment objectives, time horizon, and sustainability preferences.