You should now be confident about what assets are, so over the next few posts, we’ll look at what your choices are when it comes to making a purchase. First of all, let’s get to grips with equities.
What are Equities?
For most of us, this is where the magic happens. Buying equities, otherwise known as shares, is a simple way to build wealth for the future and comes with a lot less grief than, say, owning property and becoming a landlord.
When you own a share in a company, you are entitled to a few privileges. You have the right to vote in company affairs and on decisions to be made. You delegate the day-to-day running of the company to the board of directors, but they are answerable to you as a shareholder and an owner. But because you delegated, so you can’t dive in and start bossing around the sales teams or redesigning logos.
If the company makes a profit, it might declare a dividend and this is your share of the profit to enjoy. Most people who are accumulating wealth don’t spend them, but use the dividends to buy more shares, accelerating the compound effect.
If the company does well its share price will rise. Actually, there are always two factors at play in the price of any asset which is traded on stock markets: the fundamentals of the company and the greater economy at the time, and the sentiment of investors. Ultimately, share prices are driven by supply and demand.
While supply is usually fairly fixed, demand will be based on those two factors, fundamentals and investor sentiment. Importantly, you can’t influence either of those things, so the fluctuation in the price of your shares is something you’ll have to observe somewhat passively. Shares are easy to buy and sell and the term for this is that they are ‘liquid’. This is generally a good thing with investments.