WHAT
ARE

Shares?

Equities, commonly referred to as stocks or shares, represent ownership in a company. When you buy equities, you are purchasing a portion of a company, making you a shareholder. As a shareholder, you own a piece of the company and are entitled to a share of its profits, which can be distributed to you in the form of dividends. Additionally, if the company grows and becomes more valuable, the price of its shares may increase, allowing you to sell your shares for a profit.

Key Features of Equities:

1. Ownership Stake:
When you buy equities, you become a part-owner of the company. The more shares you own, the larger your ownership stake in the company.

2. Potential for Capital Appreciation:
The value of equities can increase over time if the company performs well, leading to potential capital gains when you sell your shares. This is one of the primary ways investors make money from equities.

3. Dividends:
Some companies pay out a portion of their profits to shareholders in the form of dividends. These are usually paid on a regular basis (e.g., quarterly) and provide investors with a source of income. Not all companies pay dividends; some may reinvest profits back into the company for growth.

4. Voting Rights:
As a shareholder, you typically have voting rights on certain company matters, such as electing the board of directors or approving significant corporate actions like mergers. The number of votes you have usually corresponds to the number of shares you own.

5. Types of Equities:
Common Stock: This is the most common type of equity and represents basic ownership in a company. Holders of common stock typically have voting rights and may receive dividends.
Preferred Stock: This type of equity generally does not carry voting rights but has a higher claim on assets and earnings than common stock. Preferred shareholders often receive dividends before common shareholders and may have a fixed dividend rate.

6. Liquidity:
Equities are generally liquid investments, meaning they can be easily bought or sold on stock exchanges. However, liquidity can vary depending on the company and market conditions.

7. Market Fluctuations:
The price of equities can fluctuate based on various factors, including the company’s performance, economic conditions, and market sentiment. These fluctuations can lead to both gains and losses.

8. Risk and Return:
Equities are generally considered higher-risk investments compared to bonds or savings accounts, but they also offer the potential for higher returns. The value of equities can be volatile in the short term, but they have historically provided strong returns over the long term.

9. Equity Markets:
Equities are traded on stock exchanges, such as the Australian Stock Exchange (ASX) or the New York Stock Exchange (NYSE). Investors can buy and sell shares through brokers who execute trades on these exchanges.

10. Investment Strategies:
Investors use various strategies when buying equities, such as:
Growth Investing: Focusing on companies that are expected to grow at an above-average rate compared to others.
Value Investing: Seeking out undervalued companies that are trading for less than their intrinsic value.
Income Investing: Focusing on companies that pay high dividends, providing a steady income stream.

Advantages of Investing in Equities:

Growth Potential: Equities have the potential to deliver
significant capital appreciation over time, especially in a growing
company.
Dividend Income: Some equities provide regular income through
dividends, which can be an attractive feature for income-focused
investors.
Ownership: Being a shareholder gives you a stake in the
company’s success and a voice in corporate decisions.

Disadvantages of Investing in Equities:

Risk of Loss: Equities can be volatile, and there is a risk that the
value of your investment could decline, leading to financial
losses.
Market Volatility: Stock prices can fluctuate widely based on
various factors, including economic conditions, company
performance, and investor sentiment.
No Guaranteed Returns: Unlike bonds or savings accounts, equities do not offer guaranteed returns, and dividends are not assured.

In Summary:

Equities represent ownership in a company and offer the potential for capital appreciation and dividend income. They are a key component of many investment portfolios, especially for investors seeking long-term growth. However, they come with higher risks compared to other investment types, so it’s important to carefully consider your risk tolerance and investment goals when investing in equities.