Equities 101: How to Invest in the Stock Market

Whether you're saving your hard-earned dough for a future holiday, to protect your family's future or even planning for your retirement, we all want our money to go further. Investing your money can seem overwhelming but the truth is, sometimes, making your money work for you doesn't have to be so daunting.

You may have casually overheard about equities, or you may actually have started reading in hopes to delve deeper into the subject of equity investing. Buying and selling equities is not as complicated as it appears – with a few simple tips and jargon busting you can be on your way to making your first equity investment and more!

What are equities?

An equity is part ownership of a company; the more equity you have, the greater your ownership you have in the business. Owning equities gives you access to the company's profits and assets.  When you own equity in a company, you are known as a shareholder in that company.  The terms stocks, shares and equities all mean the same thing – the word used varies depending on geographic location.

How does it work?

When you buy an equity you will receive an equity certificate – this is a simple piece of paper that shows you own a part of the company. It legally and officially indicates that you have agreed to buy a share of a company, at a specified price and amount.  These equity holdings will be stored within an electronic system for your convenience and security. You are able to buy and sell the equities easily and quickly through your computer or over the phone.

Why do people invest in equities?

People invest in equities to share the company profits. Often, this leads to positive returns on money invested. Equities are alternatives to saving your money in a savings account and they provide higher returns historically. As equities have the potential to provide higher returns than other investments, investors tend to favour them as an investment tool.

Shareholders make profit when the value of their equity appreciates, selling it a higher price than at which they bought. Certain equities pay dividends to shareholders – giving out a share of profits through the year, instead of putting those profits back into the company.

How can it benefit you?

Equities can give you a good return on your money. Another plus point is that shareholders get voting rights in the company – which means you get a say in some important decisions for that business. At annual shareholder meetings you can vote on key matters – such as selecting a board of directors. Or you might use your vote to steer the business in a certain ethical or environmentally friendly direction. Another benefit is that you have "limited liability" – you can invest knowing you will not lose any more money than you put in. Even if that company goes under, no one will come after your money or your home. This is a great benefit. You get to own part of a business but debt collectors can never touch your personal property.

What are the common risks?

Remember that equity prices go two ways – they can go up and also go down.

Equities don't always give a positive return.  If the company goes out of business you could lose all the money you put in.  Because of this risk investors are rewarded with a higher rate of return compared to other types of investment.  You should also keep in mind that if the company does go bankrupt shareholders are low down in the queue when it comes to getting their money back.

Things to look out for before investing in equities?

Equities can be great investment if you understand the risks. Don't put money into equities without thinking through when you might need that money again as equity investments need some time to generate a good return for you. Also remember that you will have to pay tax on the returns you makeon equities.

Equity investing can give you a good return on your money over the long term. It really isn't very complicated or tricky. After going through these few simple points you are ready to go!