Investing in equities means buying a stake in a company and each share represents a percentage of ownership.
The return received from your shares can be delivered in two main forms:
- Increase in the share price – This could be as a result of company growth or demand for the shares.
- Shareholder Dividends – Depending on the company, some shares will pay you a proportion of the profits the company has made for that year, some companies even pay a rising dividend which could protect your income from inflation over time.
Possible benefits of investing in equities?
- Long term growth
- Protection against inflation
- Rising Income
Is there risk?
Shares have historically outperformed the other main asset classes: bonds, property and cash. If you are well diversified and invest for the long term your individual shares can provide attractive returns.
It should be said that holding shares in just one company is never advisable. If that one company gets into difficulties then you could lose some or all of your money.
This company specific risk can be mitigated by investing in several companies from different industries and geographical regions. This helps to reduce the risk of having all your eggs in one basket.
The risk of holding a portfolio of diversified stocks will be less than the risk inherent in holding any single one of the individual stocks. Investing in stocks that perform differently depending on market conditions i.e. some sunny days stocks and others rainy day, will help to produce an all weather portfolio prepared to face different types of market conditions.
In recent years a lot of research has been conducted which concludes that 95% of company risk can be eliminated by just picking a portfolio of 20 individual shares.
Equities as part of the big picture…
At the Raymond James East Yorkshire branch, equities are a useful tool in our asset allocation planning as they allow a portfolio to be tailored to a desired risk and return profile for an investor and add further diversification. Equities can be bought in larger, more-established companies, as well as smaller companies that present more potential for growth.
Whether you are new to investing and are seeking help and recommendations, or a more experienced investor looking to discuss potential investments suitable for your portfolio, our wealth managers and stockbrokers are always available to point you in the right direction to ensure the most appropriate investments are selected for your circumstances.