Investing in equities is the same as investing in stocks. In a manner of speaking, if you’re investing in stocks, then you’re investing in equities!
However, not all equities are stocks, as the term “equities”, includes a list of different investment options (one example is mutual funds). The common factor is that none of these investments pay a fixed interest rate, but rather you make a portion of the profit that the company or fund earns.
What Are Equities?
Equity has different meanings in different contexts.
Simply put, equity refers to shares that represent ownership in an entity, such as a company or a fund. In the stock market, equities are shares or common stocks that different companies have listed for the public to buy and invest in at varying market prices.
With companies, when you’re buying equity, you’re essentially buying a shareholding of that company. In a mutual fund, you’d be buying equity when investing in units of the fund.
When one says they’re investing in equities, it refers to investing in these different types of companies, common shares, or fund units. This approach holds a high potential for investment returns while diversifying your investment portfolio significantly.
The Benefits Of Equity Investments
Reward Potential
Having invested in multiple outlets, your chance of gaining a huge potential payout gets much better. Even if one of the businesses or funds you’ve invested in grows in value, your entire portfolio’s value increases.
You can assess how your investments are being rewarded and adjust your investments accordingly. This lets you focus on investments that give you the best returns.
Dividend Payments
With equities, your investments are not just growing in value, but you’ll also be seeing varying levels of income from different equities. For your investment, you’ll get dividends, which are payments from the profits of the different businesses and funds you’ve invested in.
Diversification
Investing in equities is a great way to diversify your portfolio. You’ll be investing in multiple businesses from multiple industries and through investments in ETFs, index funds, and mutual funds.
Accessibility
Equities don’t bind you to invest your money for a fixed time. You will always have access to your investments and be able to divest or reinvest according to your wishes.
While one can’t deny the benefits of investing in equities, these benefits do not mean they are suited to every investment portfolio. The key to wealth management is knowing what investments are best suited to your financial goals.
Working with financial advisors will give you a better understanding of equities and whether they are the right investments for your portfolio. No matter what, always keep the strategy in mind that will help you achieve your financial goals.
The Types Of Equity Investments
Common Shares
These are shares that represent partial ownership of a company. Each unit of ownership is called a share, which means the investors in these units are called shareholders.
Shareholders make a profit from the company off of their investment in proportion to how much shareholding they have. Shares are listed for the general public to purchase on the stock exchange, such as the Toronto Stock Exchange.
In addition to enjoying profits through dividends, shareholders also have voting rights to decisions that are made in the company. The person holding the most number of shares would have the most influence on such decisions of the company.
Mutual Funds
Mutual funds are where a group of individuals pools their money into a fund and managers of such funds invest in different companies, businesses, and stocks. This is ideal for individuals who don’t know a lot about trading and don’t have the time for research.
If a mutual fund is managed by a reputable management company, then you can expect decent returns. You get professional supervision, exponential asset diversification, and an opportunity to invest in a profitable venture for a small amount.
Preferred Shares
Preferred shares are the same as common shares, except that shareholders do not have any voting rights. However, in exchange for giving up these voting rights, shareholders still get dividends and preference when a company fails to declare its annual dividend.
In such an event, shareholders of preferred shares get a cumulative amount in payment. Therefore, preferred shareholders hold a higher priority and better claim on dividend payouts.
Private Equity
This is investing in private companies and is often possible through networking with high-net-worth individuals. Since these companies are not listed on any stock exchanges or traded publicly, the networking aspect is quite necessary.
Why Should You Invest In Equity?
Since there is a potential in equities investment to generate high returns at a faster rate, it gives you the opportunity to grow even further. The money you earn can be used to reinvest and further increase the value of your overall portfolio.
If continuous growth is not what you’re looking for and you just want another source of income, then equities investments can work in your favor as well. With the number of investments you’ve made in different outlets, you’re sure to get dividends on a periodic basis, which adds to your overall income.
The Disadvantages Of Equity Investments
While this is a potential for high return, one needs to look at equities as a long-term investment. You get to enjoy sizable returns over time, but you’ll also be holding a great deal of equity exposure.
Someone who is young can afford a higher level of equity exposure, but, is near retirement age, for example, such a risk if not a positive trait in your portfolio. So before you consider investing in equities, really think if you’re willing to give the right time commitment, and can afford it according to your age.
Seek The Help Of Equity Investment Experts Near You!
It would help a great deal to consult with a financial consultancy firm such as Eastport Financial Group Inc. Located in Halifax, NS, we are the #1 Financial Advisory & Wealth Management Consultancy Firm in the Atlantic Provinces.
With our renowned experts by your side, your financial future is in secure and trusted hands. Our hundreds of reviews and testimonials are a testament to our service and dedication to helping you succeed financially by building a safer more prosperous future for not just you and your family but for generations to come!
