On Financial grounds Equity is defined as a stock or any other security representing an ownership interest after all debts associated with it is cleared off. The primary reason one invests in equities is for the purpose of allowing capital to grow. It is important that you opt for proper Asset Allocation prior to investing in the markets. Opting for the help of a financial advisor does help a lot. Equity Risk term is another important factor that creeps up in the mind of an individual while investing. It is defined as the excess return that an individual stock or the overall stock market provides over a risk-free rate.
Equities (stocks) have greater risk than bonds because they represent the residual interest in a company after all other claims are paid. If a company goes bankrupt, short-term creditors such as employees and suppliers are first to be paid, followed by banks and other lenders, and only after those claims are settled is equity investors (owners) compensated. Given that there is greater risk; investors need an incentive to invest in equities. When you invest in equities the investment must focus on the most reputed sectors that have provided the maximum returns over the past few years. Proper
Financial Planning is a must. A second reason to invest in equities is that they provide diversification. Even owning international equities provides a diversification benefit relative to a domestic-only equity portfolio. The benefits of diversification include higher average returns with lower average volatility. When combined with other asset classes such as bonds, real estate or commodities the diversification benefits can be even greater.
Equity Value is a market-based measure of the Equity Value of a firm. It is also called Diluted Earnings Per Share or Earnings per share (EPS). When you invest in equities through any brokerage firm you are to set up a trading account which is also known as a
broking account. Once the set up is done you are provided with a relationship manager who takes care of your investments and transactions. Equities are also considered to offer protection against inflation. Although higher inflation often causes stock values to decline in the short term, over long time horizons equity returns have a positive relationship with inflation. Prior to investing in equities understand the potential ramifications and options available in the market. Opt for a broker after conducting thorough analysis and check his track record. Always be aware of your investment.
A major advantage that equity funds offer investors is the possibility of enjoying good returns while professionals manage the risk. Investment funds are structured so they can diversify their exposure among shares of many different companies. Investing in just one or two shares is generally much more risky than buying shares in dozens or more companies. By holding shares of different companies in several industries or sectors investment funds can reduce the likelihood of a damaging loss through a price decline in the shares of one or two companies. Although
stock markets go through lean periods statistics show that, in the medium and long term, they provide better returns than bonds or cash. That is why there is universal agreement that stocks and shares comprise the best medium to provide long-term capital gains for investors. Hence opting to invest at the right time is important.
