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.

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.  

Most Popular

Shareholder capitalism: why we must return power to listed companies’ ultimate owners
Investment strategy

Shareholder capitalism: why we must return power to listed companies’ ultimate owners

Under our system of shareholder capitalism it's not fund managers, it‘s the individual investors – the company's ultimate owners – who should be telli…
24 Jan 2022
Three innovative Asian stocks to buy now
Share tips

Three innovative Asian stocks to buy now

Professional investor Fay Ren of the Cerno Pacific Fund highlights three of her favourite Asian stocks to buy now
24 Jan 2022
Ask for a pay rise – everyone else is
Inflation

Ask for a pay rise – everyone else is

As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why yo…
17 Jan 2022