Advertisement

Equities

Equities, shares and stocks are all names for the individual units that give you a financial interest in a company.

Equities, shares and stocks are all names for the individual units that give you a financial interest in a company. The terms are often used in slightly different ways: investors sometimes refer to shares when discussing a single company, shares or stocks when they talk about a small or loose group of companies, and equities when they mean more formally defined groups (or when they just want to sound more professional). But those distinctions are not absolute and all three words will often be used interchangeably.

Advertisement - Article continues below

An equity investor in a company is known as a shareholder – the terms equity holder and stockholder are less common. The name for a market on which shares trade is the stockmarket (or share market in a handful of countries such as Australia). Equity markets is also sometimes used, but most commonly to refer to a group of stockmarkets (eg, European equity markets). 

Shareholders are often described as the owners of a company. This is not strictly true: under most systems, companies are separate legal entities whose relationship with their shareholders, managers, employees, creditors and customers are governed by a wide range of regulations and contracts. But owning equities gives you certain rights and control over a company. These rights typically include appointing the board of directors, approving certain actions (eg, the issuance of new shares that may dilute their ownership) and getting a share of any dividends declared by the directors.

In essence, equities amount to a claim on the assets and accumulated earnings that would be left after paying back liabilities (known as shareholders’ equity). Equities rank below creditors (such as bonds and loans) in priority when being paid, but receive all the excess profits if the business is successful. On average, they are riskier than bonds, but should produce higher returns in the long term.  

Advertisement
Advertisement

Recommended

Visit/glossary/bonds
Glossary

Bonds

A bond is a type of IOU issued by a government, local authority or company to raise money.
19 May 2020
Visit/spending-it/glossary/601300/quantitative-investing
Glossary

Quantitative investing

Quantitative investing uses sophisticated computer-based mathematical models to identify and carry out trades.
8 May 2020
Visit/glossary/quantitative-easing-qe
Glossary

Quantitative easing (QE)

Quantitative easing (QE) involves electronically expanding a central bank's balance sheet.
8 May 2020
Visit/glossary/600702/emerging-markets
Glossary

Emerging markets

An emerging market is an economy that is becoming wealthier and more advanced, but is not yet classed as "developed".
24 Jan 2020

Most Popular

Visit/investments/commodities/industrial-metals/601401/money-printing-infrastructure-base-metals-copper
Industrial metals

Governments’ money-printing mania bodes well for base metals

Money is being printed like there is no tomorrow. Much of it will be used to pay for infrastructure projects – and that will be good for metals, says …
27 May 2020
Visit/economy/eu-economy/601422/heres-why-investors-should-care-about-the-eus-plan-to-tackle-covid-19
EU Economy

Here’s why investors should care about the EU’s plan to tackle Covid-19

The EU's €750bn rescue package makes a break-up of the eurozone much less likely. John Stepek explains why the scheme is such a big deal, and what it …
28 May 2020
Visit/investments/funds/601385/in-support-of-active-fund-management
Funds

In support of active fund management

We’re fans of passive investing here at MoneyWeek. But active fund management has its place too, says Merryn Somerset Webb.
25 May 2020