What Are Equities?

In simple terms, equities are securities that give their investors an ownership stake in the issuing company.

Equities, explained

Broadly, equity in finance tends to refer to the value of property. Think home equity, company value or ownership in private ventures. 

But in investing, “equities” has another meaning: company stock. 

When you buy a share of company stock, you’re buying equity. That equity then gives you a tiny slice of ownership in the company. Companies often issue equity to raise money from investors to pour into growth and expansion efforts. 

For an investor’s standpoint, equities are valuable due to their potential to appreciate, or rise in price. If an investor buys low and sells high, they can generate capital gains.

You can obtain equities several ways, such as by investing in the stock market or receiving equities as an employee. 

Equities often come with other perks, depending on the type of stock you buy and in which company. Some common perks include:

• Dividend payments
• Voting rights
• 
  

What are the risks attached to equity?

Investing in equities is a common, effective way to build wealth, save for retirement and secure your financial stability. 

Over the last century, the stock market has averaged around 10 percent returns annually thanks to compound interest. (Compound interest is when you make gains on your gains in a snowball-like effect.) 

But equities do come with some risks. 

To start, their value fluctuates based on factors like company performance, economic activity, and investor speculation. As such, they don’t offer a guaranteed return, even if they pay dividends. (Both because companies may stop paying dividends and dividend values are often so small that a drop in share price eclipses their value.) 

Moreover, equities may experience extreme price swings, particularly in bear markets. If your investment portfolio is heavily weighted toward equities, you stand to lose more when the market crashes. 

As such, equities are often better investments for those who are far away from retirement, have a higher risk tolerance or prefer an aggressive approach. 

What this means for you

You can invest in equities in two primary ways. 

The first is to invest in individual stocks using your brokerage account. While this option lets you control your investments in fine detail, it’s also time-consuming to research each company. Additionally, while fractional share investing means you don’t have to buy a whole share of many companies, you’ll still have to work harder to ensure you’re well-diversified. 

Alternatively, you can invest in fund-based assets like mutual funds, index funds and exchange-traded funds (ETFs). With fund-based investing, you can enjoy all the perks of a diversified, managed portfolio while avoiding costly trading fees. However, you won’t have the same level of control over your specific investments. 

But regardless of which method you choose, remember that investing is best played as a long-term game.