What are Equities?

Equities are shares in a corporation. They are financial instruments that give their holders an ownership position in a corporation. Equities give their holders a proportionate claim to the profits and assets of a company, usually in the form of dividends and final distributions. However, equities are junior to the claims of all creditors and lenders, so payouts in the event of a corporate dissolution can be low to nonexistent. Thus, equities give both the risks and rewards of ownership.

Examples of Equities

Examples of equities are common stock and preferred stock. A variation is convertible bonds, which are initially not equities, but which become equities if investors convert the bonds into the common stock of the issuer.

Benefits of Owning Equities

There are several benefits associated with owning equities, which are as follows:

Possibility of appreciation. The price of equities may increase over time. This is common in an expanding economy, though the reverse may occur during a recession.
Possibility of dividends. Some of the more established and financially stable of the equities issuers pay out dividends to the holders of their shares. Depending on the issuer, you may be able to automatically reinvest these earnings back into the issuer’s shares.
Diversification opportunities. It is usually quite easy to build a diversified portfolio of equities and other investments that align with your risk profile and investment goals.