Equities

Equities can be defined as stocks or shares in a company that investors can buy or sell.

For example, when you buy a stock, you are purchasing equity, thereby becoming a partial owner of shares in a specific company or fund.

Equities do not pay a fixed interest rate, and as such are not considered guaranteed income. Consequently, equity markets are often associated with risk.

When a company issues bonds, it’s taking loans from buyers.

When a company offers shares, on the other hand, it’s selling partial ownership in the company.

Equities have become a popular form of investing. Despite their risk, there are many reasons for individuals investing in equities.

Equity holders can also benefit through dividends, as these differ notably from capital gains or price differences in stocks you have purchased.

Dividends reflect periodic payments made from a company to its shareholders. They’re taxed like long-term capital gains, which vary by country.

Why are Equities so Popular?

In the United States and many developed countries, equity markets are amongst the largest in terms of transactions, investors, and turnover, adding to their growing popularity in recent decades.

The appeal of equities is the potential for high returns. Most portfolios feature some portion of equity exposure for growth, which as mentioned also carries a larger degree of risk.

Equities are also popular with younger investors who can largely afford to take on higher levels of equity exposure, i.e. risk.

As such, these individuals have more stocks in their portfolio because of their potential for returns over time.

However, individuals looking to retire or rely on a more stabilized and risk-averse portfolio often reduce their equity exposure.

This stance is hardly novel and can explain trading habits among many investors.

For example, holders of retirement accounts typically will shift at least a portion of their investments from stocks to bonds or fixed-income as they get older.