What is an equity investment?

An Equity investment is essentially the purchase of a share in a company. This can be a share in one company or shares in a range of different companies.

Clearly, purchasing shares in one business can be very risky, as you are dependent on the business performing well and that performance being reflected in the share price.

The World stock markets can be very volatile and any investment needs to be made with the recognition that the value of the equity can go down as well as up.

If you decide to invest in a particular UK equity fund then this is likely to be more diversified. Dependent on what you want to achieve, you can invest in:

  • FTSE100 – that is the top 100 companies listed on the Financial Times Stock Exchange. The list includes many companies that you are likely to have heard of – Coca Cola, BT, BP, Tesco, Unilever and Vodafone are just some examples. It is dominated by oil, banking, pharmaceutical and tobacco companies. This is slightly less risky, as they are all well established businesses, but there are still no guarantees. The FTSE is also very interconnected with the other global stock markets like the Dow Jones in the US, and often follows their performance.
  • FTSE250 – similar to the FTSE100, but the companies ranking from 101 to 350 on the Stock Exchange, including names such as Marks and Spencer and Greggs. There tends to be more UK based companies in the FTSE250. These companies tend to be more sensitive to domestic issues such as Brexit, so the market can be quite volatile.
  • AIM listed – this is investing in smaller businesses that are not so well known – they may have only recently floated on the AIM market and as such, are seen as very risky. You can make good gains, but equally experience some big losses.

When you make an equity investment, you might want to think about your moral/ethical code.

You can choose not to invest in businesses in the gambling or arms sectors for example. Or you might prefer to only choose companies that are committed to supporting the environment.

Our recommendation would be do your research and understand what you are investing in before making a decision.

Remember that any financial gains may be subject to taxation, for example capital gains tax. There are also fund charges and costs for buying and selling the shares to consider.

You should very much see equity investments as a long-term Investment strategy – not an easy or quick way to make a profit.

It is not an investment strategy we recommend on its own, as the investment can be volatile and can carry significant risk.

If you would like to learn more about investing in equities and to see if they are right for you, please contact us on: 01344 875 310.

what is an equity investment