Equities could be a mysterious concept for someone who is not well-versed or educated on the topic. If you’re a beginner, it’s hard to know what they are all about.
Even if you have been an investor for a while, like Kavan Choksi, equities can be a complicated topic. You hear about them when someone sends in your portfolio after rebalancing or talking with your advisor about buying or selling shares of stock in companies. You may hear people talk about their investments, dividends, and even the markets crashing and leaving without understanding what was just discussed.
You must know what equities are before making any investment decisions. Here are some concepts about equities you need to know:
1) Equities are a class of assets
Equities are a class of assets that includes common stock (shares) and preferred stock. They are also known as stocks, shares, or equities. You can buy these stocks through an investment company or directly from the companies themselves.
2) Equities are ownership in a corporation
When you purchase equities, you’re becoming part owners in a corporation, which is just another word for business. Corporations use the money raised by selling their stocks to start or expand their businesses, or they can use it to buy other companies. When investors purchase the corporate stock, it provides the company with the cash needed for operations and growth. This benefit is one of many reasons why corporations sell corporate stocks to raise capital – because when someone buys them, it becomes positive for the company.
3) Investors are share-owners of the company
When you purchase equities, you become an investor. You now own a part of the business and have the right to vote on major issues that can affect your investment, such as electing board members or approving mergers. If the corporation is successful, then your shares will likely increase in value because more money is coming into the company, resulting in increased profits.
4) Equities come with dividends
If you’ve ever received cash directly from owning stock (equities), then you earned yourself some dividends. Dividends are payments made by companies to shareholders who hold preferred or common stock – they are usually paid quarterly at set amounts per share that you own.
5) There is a downside to equities that you need to be aware of
The only way your investment can go down and lose value is if the company falters and its stock falls in price – meaning people suddenly don’t want it anymore, and after all, no one wants to hold worthless investments. This happens when investors become afraid of the prospects of the company’s business, so they sell their shares because they do not wish to take such a risk (and who can blame them?). The other reason why your investments could decrease is if another investor outbids you for an equity share during a company’s IPO (initial public offering) or secondary offering; this means that other people are willing to pay more for what you want (or need), and because of this you no longer have the opportunity to buy it.
Equities are a type of investment that can be complicated for beginners to learn about. However, it is important to know what they are and how they work before making decisions. Equities give you ownership in a corporation, providing the company with the capital needed for operations or growth.