Equity Investments

 Key takeaways

• Equity investments involve buying company shares, making you a shareholder. The value of your investment fluctuates with the company’s performance, potentially leading to capital gains and dividends, but also risks if the company underperforms.

• Public equity is where stocks are traded on the stock market whereas, private equity is where you invest in private companies, often requiring substantial capital

• Private equity requires significant capital and long-term commitment, often out of reach for average investors

• Choose what to invest in, select an investment platform, and consider tax-saving options like stocks and shares ISAs or pensions

What are equity investments?

Equity investments involve purchasing ownership shares, also known as stocks, in a company. These shares represent a piece of the company and entitle you, the investor, to a share in the company's profits and assets.

As the company's value fluctuates, so does the value of your investment. This dynamic can work in your favour, leading to capital gains and possibly dividend income if the company thrives. However, if the company's fortunes decline, your investment may suffer. 

What are the different types of equity investments?  

Equity investments come in various forms, each with its characteristics:

What should I look for in a public equity fund?

Within public equity, there are several subcategories to consider: 

Equity funds can be classified by geography, with domestic, international, and global equity funds investing within the UK, outside the UK, and a combination of both, respectively. 

What are the advantages and disadvantages of equity funds?

Equity investments are not a one-size-fits-all solution. They offer potential for higher returns and liquidity in public stocks, but they also come with risks: 

Advantages 

• Potential for higher returns compared to savings accounts 

• Capital gains if the company's value increases 

• Dividend income from profitable companies 

• Liquidity in public equities 

• Voting rights in company decisions 

Disadvantages 

• Risk of investment loss if the company's value declines 

• Market volatility influenced by global events 

• Currency risks for international investments 

Is your money safe? 

Equity investments are not without risks. The value of your shares can decline, and if a company underperforms significantly or goes bankrupt, you could lose your investment. However, risks can be mitigated through diversification and combining equity investments with safer savings options. 

Public vs private equity

Private equity is different to public equity, requiring significant capital and a longer-term commitment. It's about buying and managing companies before eventually selling them, often for substantial profits. However, due to the scale and time commitment, private equity is usually out of reach for the average investor. 

Are equity investments right for you? 

Before diving into equity investments, consider if they align with your financial goals and risk tolerance. They may be suitable if you're looking to invest surplus money for a period and are comfortable with some level of risk. Conversely, if you require immediate access to your funds or are debt-heavy, you might want to reconsider. 

How to get started with equity investments 

To start your equity investment journey, you'll need to decide what to invest in, with equity funds being a popular choice for newcomers. You'll also need to select an investment platform, which could be a bank, brokerage, robo advisor, or trading app.

Finally, you should think about tax savings which includes either keeping your investments in a stocks and shares ISA or a pension. 

What are some alternatives to public equity?

Equity investments are not the only pathway to growing your wealth. Consider these alternatives: 

• Fixed rate bonds: Guarantee a return over a set period without the risk associated with equities. 

• Easy access savings account: Offer safety and flexibility, with protection up to £120,000 by the FSCS. 

• Cash ISA: Provide a tax-free way to earn interest on your savings. 

• Peer-to-peer lending: Offers potentially higher returns but without the same level of protection as a savings account. 

Finding the right ISAs with MoneySuperMarket

MoneySuperMarket simplifies the process of finding a suitable stocks and shares ISA. The platform presents various options, detailing minimum investments, management styles, and fees, allowing you to compare and choose the best fit for your financial goals.