What Is Equity Investing?

Equity Investing

Equity investing is when individual investors, investment groups, or most often mutual funds, pooled groups of investors, buy shares in a given company for future financial gain from paid out profit dividends and increased share value.  Equity investing rarely includes individuals buying stock in a company.  The most common equity investments are handled by mutual funds.  Mutual funds pool groups of investors together and collectively invest the money for profit.  For the average investor mutual funds offer many benefits such as increased buying power, protection from single-loss investment in individual company stock, and perhaps most importantly: professional management. With a mutual fund the stock investor does not have to make daily decisions on equity investments.  The mutual fund manager, usually a professionally trained group of investment managers, leads the fund in equity investments.  In this way the average individual investor can benefit from the wisdom of a really smart group of financial experts making the decisions for them.  The cost of this professional investment service is just usually a few percentage points of the overall invested amount.  When investing in equity, it’s a small amount to pay for potentially big paybacks.  A decent mutual fund will usually provide returns consistently of 20-30% profit.

Equity Defined

Equity investments are not confined to just buying stocks in mutual funds.  Equity investment can also include investing or loaning money to startup companies, known as venture capitalism.  These types of investments are known to be both hugely profitable when they pay-off, but also devastating losses when they do not.  For this reason the vast majority of equity investing takes place in the mutual fund sector.

To understand what equity actually means, it is simply a mathematical calculation.  When a new company is started, the owners typically have to take loans or even lend their own money.  The value of the company is thus its assets, minus its debts.  The equity a company actually has is this amount.  Just like in a home, the home´s equity is the current market value of the home, minus the loan amount owed.  To determine a company´s equity prior to investing one must look at the company´s financial reports.  If the company is publicly traded this information is available in the form of a 10k report.  If the company is not publicly traded one will have to investigate themselves.

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1. What Is A Mutual Fund?
2. Investing 101: What You Need to Know to Start Enhancing Your Portfolio
3. How Do I Invest?
4. Investing in Funds
5. What Is The Most Common Stock?