Equity investments explained

Equity investments mean you’re investing money into a company by purchasing their shares on the stock market. Shares are small portions of a company, also known as stocks. Once you have a share in the company, they can be traded on a stock exchange.

Owning these stocks entitles you to a portion of the profits and assets the company makes. This is a common process that allows an individual or company to invest money into a company and become one of its shareholders.

There are several types of equity investments, including the following:

• Common stocks – an investor holds shares in a company and earns a return through dividends. As an investor, you have little control, which is why some consider common stocks to be a risky investment, but common stocks can produce a high return over the short term.
• Purchasing preferred stocks – this is a stable equity investment with no power granted to you for your investment. You receive regular dividends which are independent from the market.
• Warrants – with warrants, common stocks are available for a specific time period. If these stocks aren’t purchased, they might become worthless, but may provide good returns when bought.
• Convertible debt – this is a type of bond without collateral that you can exchange for common stocks. This debt is often priced at a rate lower than the regular stock price.
• Equity line of credit – this is similar to a bank line credit, meaning you can purchase common stocks over a period of time. The advantage you can gain from this type of equity investment is that the stocks purchased are bought at a discounted price.
• Sales of restricted shares – this refers to the stocks in a company that can be transferred to another person once they’ve met certain criteria.

You can purchase shares of a company on an exchange with the expectation (but not the guarantee) that its share price will increase in the long term. You may want to consider this type of investment if you think the company you’re investing in has the potential to grow. If you hold shares in a company that has seen significant growth, the value of its shares will likely increase, too. If your shares increase in value, you can then sell them and earn a profit.

Shares of private companies are only available via private equity funds. They are usually reserved for professional investors who are able to invest a high lump sum for a long period of time. There are a few ways you can invest in public equities, however, and the most common way is using an online investment platform which offers equity funds or allows you to make equity investments. You’ll usually be asked to register and open an account. Once you’ve registered, you’ll be able to purchase stocks or shares of equity through a mutual fund or ETF by using a brokerage account.

Equity investments can provide strong returns, but it’s important to understand the risks that this type of investment can involve. These risks include losing some or all of the value of your investment, which might happen if a company you’ve invested in fails.

If you’re not comfortable with taking this amount of risk, you might want to consider other, safer alternatives to equity investments, such as savings accounts. Savings accounts are typically considered a much safer way to grow your money because with UK-regulated banks, your deposits are protected by the Financial Services Compensation Scheme (FSCS).