What are Equities?

Published by Thomas Herold in Trading, Investments

'Equities' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Equities are another name for stocks and similar types of investments. Stocks turn out to be financial instruments that represent ownership, or equity position, within a given corporation. As such, they give an owner a stake in a representative share of the company’s profits and assets. Such ownership in a given firm is determined by taking the total numbers of shares in the company’s equities that the individual owns, and dividing it by the actual number of shares that exist.

The majority of these equities similarly give voting rights that provide representative votes in some decisions that the company makes. Not every company issues equities; only corporations engage in the practice, while limited partnerships and sole proprietorships do not. Equities can be further divided into smaller categories based on the market capitalization, or size, of the company in question.

Because they often yield greater returns over significant periods of time, they are typically characterized by higher amounts of risk than are bonds and money market funds. Because of these unique potential returns and associated risks, equities are generally considered to be their own class of assets that are utilized to a degree in putting together investment portfolios with proper diversification. Many different kinds of equities exist, including domestic equities, emerging market equities, developed market equities, and Real Estate Investment Trusts.

Domestic Equities prove to be those stocks for the publicly traded corporations that principally conduct their business in the same country in which the investor lives. When a person holds such equities, they receive their share of dividends that the corporation pays. Equities come with a higher degree of risk than do bonds, as bond holders have a greater claim on a corporation’s assets should liquidation follow bankruptcy. Equity holders are commonly wiped out in such liquidation.

Emerging Market Equities are equities in corporations that are based in countries that are still developing their economies. Included in these are China, Brazil, and India. These nations feature economies that are commonly volatile and lack many protections for investors, like auditing and laws or monitoring of securities that are found in the industrialized countries.

Developed Market Equities are equities in firms that work primarily outside of an investor’s home country but still in an industrialized country. For Americans, this mostly translates to European country companies, as well as those in places such as Japan, Australia, and New Zealand. Such companies and economies in these nations prove to be more stable than those in developing countries.

Real Estate Investment Trusts, also known as REIT’s, are equity funds that invest in residential and commercial real estate. Because they receive lease and rent payments off of their investments, these typically pay greater percentage returns in dividends. These higher distributions mean that REIT’s are much like a combination of fixed income and typical equity investments. This means that they commonly feature greater risk along with better anticipated returns than do the majority of fixed income investments.

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The term 'Equities' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.