Equities trade on global stock markets in the form of shares. Buying shares of companies like Apple, Coca-Cola, or even a little regional bank buys you a small piece of that business that gives you a claim on its future profits and assets.
You'll hear "equities," "stocks," and "shares" used interchangeably in the news and financial reports, but there are subtle differences. Equity is the broader term that refers to ownership, while a stock is a form of equity and shares are individual parts of a company's stock.
Common Stock vs. Preferred Stock
Most individual investors buy equities as common stock.
Ownership gives you voting rights on major company decisions that can include electing a board of directors, mergers and acquisitions, and executive compensation. Owning common stock also gives you a share of any dividends a company pays.
Preferred stock is more complicated and may be for advanced investors. It typically pays a fixed dividend and comes without voting rights, but if a company goes bankrupt, preferred shareholders get paid out before common stockholders.
How You Make Money From Equities
There are two ways an equity investment can pay off. The most common is price appreciation, where the share price rises higher than what you paid for it.
If you buy 100 shares of Company X at $5 per share, your total investment is worth $500. If the stock rises to $7 per share, your investment is now worth $700, giving you a profit of $200, or $2 per share.
The second way to make money is through dividends. These are cash payments, usually made once a quarter, that some companies take out of their profits to reward shareholders.
Say company X pays a regular quarterly dividend of $1.25 a share. If you own 100 shares, you'll receive a payment of $125 every three months.
The Risks of Owning Equities
Among the major asset classes, equities sit at the higher end of the risk-and-reward spectrum.
Your stock may rise, but it can also fall, which means you could lose everything. If a company goes bankrupt, common stockholders are the last in line to be paid, often receiving nothing after creditors, bondholders, and preferred stock investors are made whole.
Individual stocks can also be a lot more volatile than the broad market. One piece of bad news can send share prices down 20% or more in a single day.
Instead of betting on one or two stocks, investors can spread their exposure through equity funds that hold dozens or hundreds of companies. They can also diversify by adding other asset classes to their portfolio.
Equities vs. Bonds, Commodities, Real Estate, and Cash
Other types of asset classes to consider include:
- Bonds: These are loans you make to a government or company in exchange for regular interest payments. They can be less volatile than stocks, but long-term returns are usually lower.
- Cash and cash equivalents: These include savings accounts and money market funds that pay interest and protect your principal, but barely keep pace with inflation over time.
- Real estate: These assets offer a different kind of risk exposure, since returns come from rent and property appreciation rather than corporate earnings, and they tend to move independently of the stock market.
Why Equities Are in the News Right Now
The stock market has had a strong 2026 so far. The S&P 500 index, which tracks 500 of the biggest publicly traded companies in the U.S., has closed at a record high more than two dozen times this year, and it's up more than 10% as of early September.
Corporate profits have been a major driver of the rally, with Benzinga noting that S&P 500 companies posted their best second-quarter earnings growth in five years.
That run-up has come despite headwinds, including continued inflation, global conflicts, and rising interest rates. At its latest meeting in September, the Federal Reserve raised the federal funds target range by a quarter point to 3.75% to 4.00%, which is its first rate increase since 2023. Higher rates can translate to higher borrowing costs, which can dampen corporate profits.
How to Start Investing in Equities
The easiest way to buy equities is through a brokerage account. Opening one can take less than 10 minutes, and you can do it on your phone.
Once you've added money to your account, you can place an order to buy shares using a stock's ticker symbol, such as AAPL for Apple or KO for Coca-Cola.
Most major brokerages have eliminated commissions on U.S. stock trades and allow fractional share purchases, which means you can start investing for as little as $1.
Taxes on Equity Gains
When you sell a stock for more than you paid, you have to pay taxes on your gains. How it's taxed depends on how long you've owned it. Shares held for one year or less are taxed higher than shares held longer than a year, which the IRS outlines in detail. Dividends can also be taxed differently.
Investing through tax-advantaged accounts, such as a 401(k) or Roth IRA, is worth considering, since they can defer or even eliminate taxes entirely.
What All This Means for a New Investor
Equity investing can be a great way to build wealth over time. When you're ready to get started, make sure you're on solid financial ground and decide how much risk you're willing to take on.
Then set goals and start small to build a diversified portfolio. Always do your research and keep an eye on your accounts, aiming for long-term growth over short-term gains.
