Equities
Equities, also known as shares, represent ownership in a company. When you buy shares, you become a shareholder giving you the opportunity to participate in the company’s future performance.
Investors can potentially benefit in two main ways. The value of the shares may increase over time, providing the potential for a capital return if they are sold for more than their purchase price. Some companies may also distribute part of their profits to shareholders through dividends, although these payments are not guaranteed.
The value of shares is determined by the market and can rise or fall. It can be influenced by the company’s financial performance and prospects, as well as wider factors such as economic conditions, interest rates and investor sentiment.
Understanding Equity Risk
The level of risk associated with an equity investment will depend on a number of factors, including the company invested in, the sector in which it operates and wider economic and market conditions.
Share prices can fluctuate, sometimes significantly, and individual companies may perform differently from the wider market. A company’s financial performance may also affect its ability to pay dividends, which can be reduced, suspended or withdrawn.
In some circumstances, a company may experience significant financial difficulties or fail altogether, which could result in investors losing some or all of the amount invested.
Investment Risk
The value of investments can fall as well as rise and you may get back less than you originally invested. Past performance is not a reliable indicator of future performance. All investments involve risk, and you should ensure you understand the risks associated with an investment before making a decision.
Key Features of Equities
Ownership
Buying shares gives you an ownership interest in a company and the opportunity to participate in its future growth and performance.
Capital Growth
Shares have the potential to increase in value over time, which may provide a capital return if they are subsequently sold for more than their purchase price. Their value can also fall.
Dividends
Some companies distribute part of their profits to shareholders through dividends. The amount paid can vary and dividends are not guaranteed.
Market Price
The price of a share is determined by supply and demand in the market and can change in response to company performance, economic conditions and investor sentiment.
Liquidity
Shares listed on major stock exchanges can generally be bought and sold during market hours. However, liquidity can vary and it may not always be possible to sell an investment at the price you expect.
Diversification
Equities can provide exposure to different companies, sectors and geographic markets, helping investors diversify their investment portfolio. Diversification can help spread risk but does not eliminate the possibility of loss.
Why investors consider equities
Equities can provide the potential for long-term capital growth and, where paid, dividend income. They can also provide exposure to a range of companies, sectors and markets, helping to diversify an investment portfolio. The value of shares can rise or fall and dividends are not guaranteed.
