What Are Equities?

If you are looking for an investment asset, you may want to consider equities. The problem that many new investors face is not understanding what equities are and how they can be obtained. When you understand this, you will have a better grasp of your investment and what your next steps need to be.

The Basics Of Equities

When looking at equities, the context of the term will need to be considered. If you are looking at equities in the context of the stock market, you will be looking at shares in companies. This is one of the most common means of investing in equities.

To obtain these equities, you will need to purchase shares in the company. This can be done via the stock exchange or you could hire a broker to handle this for you. When you have shares, you will own a fraction of the company.

Knowing that equities in the context of the stock market is shares is a good start, but you might wonder why you want to invest in equities at all. Equities offer a high return potential, but this does not mean you will get the high return. There is a risk when you invest in equities and you need to manage this correctly.

If you have a broker, they will class this risk as equity exposure. This is the term used to describe the money you will lose when the value of your shares decreases. Traditionally, younger people are able to afford greater equity exposure which is why older people planning retirement generally look at bonds instead of stocks.

The Role Of Dividends

When you own equities, there are a few ways that you can profit from them. The first will be capital gains and the second is dividends. They are different and you need to understand the role each plays in your equities investment.

Capital gains relates to the price you paid for the shares and what they are currently worth. You will benefit from capital gains when the value of the shares exceeds what you initially paid for them. The capital gains is the difference between the prices when you sell the shares. If you do not sell your shares, you will not benefit from capital gains.

The dividends on your equities are different as you do not have to sell your shares to get them Companies will pay dividends to all their shareholders from the profits they make, but this is not always guaranteed. If your shares pay out dividends, you will receive an amount based on the number of shares you have and the overall profit of the business.

Preferred Stock

When you look at equities, you need to know the difference between preferred stock and common stock. Shareholders with preferred stock are more likely to have a regular dividend payout and will get this before holders of common stock. The catch with these stocks is that the rate is generally fixed and will not increase if the business becomes more profitable.

Getting Equities Through Your Job

While it is possible to purchase equities from the stock exchange and using a broker, you can also get them through your job. There are a lot of jobs that offer equity as part of their contract. If your job has this, you will need to meet the requirements for vesting. The primary requirement is generally to stay in the job for a number of years and then buy into the stock option. The buy-in price is usually lower than the stock market price.

If you are looking at investments, you need to know about equities. The most common equities for investments are stocks that can be purchased through a broker or as part of your job. Visit this website to learn more about the best brokers.