An equity portfolio is a collection of investments in the stock market. Certain corporations offer publicly-traded stocks through trading facilities that are regulated by the Securities and Exchange Commission (SEC), as expressed in the Securities Act of 1933 and Exchange Act of 1934. The shares represent ownership in the companies, which then use the funds to generate revenues. Offering equities is an alternative to a corporation taking out a business loan, and can be beneficial to both investors and the company itself.
Making Money Through Capital Appreciation
Capital appreciation is the main way to make money on stocks. If the value of the stock increases, the shares you hold become more valuable, allowing your investment to grow.
The SEC notes that historical returns from the stock market average around 10 percent, with a "real" return closer to 6 or 7 percent, after factoring in inflation. In contrast, Bankrate reports that 25 percent of savings account holders receive less than 1 percent interest on their investment and a paltry 6 percent earn more than 2 percent, which is still far below the inflation-adjusted rate of return from stocks at 6 to 7 percent. Past performance can't guarantee results in the future, though, and all stock investment carries risk.
Dividends Can Offer Regular Income
Dividends are portions of profits that get paid out to shareholders on a regular basis by many publicly traded companies. The size of the dividend per share is determined by a company's board of directors, and the amount paid to any given investor is based on the amount of shares that the investor owns. Dividends can offer a regular income to investors in those companies that issue dividend payments. Some companies offer options to have dividends automatically reinvested, increasing the value of your holdings.
The Benefit of Liquidity
Equities are relatively liquid, meaning that they can be bought and sold on short notice and can be converted into earnings quickly. This offers a convenient advantage over investments such as physical commodities, where you might have to spend long periods of time looking for a buyer or seller, or products like certificates of deposit that carry penalties for early withdrawal.
Advantages of Portfolio Management
You can manage your investments in any way you like. You are free to buy and sell your holdings at any time and in any manner – although trades carry fees, which can vary depending on the service you use for trading. You get to make your own decisions about where your money goes based on your own research, or with help from a professional advisor or association.
Voting Rights Entitlement
When you buy shares of a company, you become a partial owner of that company. Most shares have voting privileges, meaning that no matter how small your say may be, you have the right to express your opinion about the operations of the business. You are entitled to attend shareholder meetings and voice your concerns.
Benefits of Diversification
In equity investment, you can hedge your bets on making a profit by diversifying your holdings. This means buying equities in a variety of different companies so that failure of one or two investments can be offset by success in other investments. The stock market offers a number of effective avenues for making diverse investments.
Strategies for Equities Investments
The advantages of equities investments offer an opportunity to use all sorts of different strategies to make money. Although they might be risky, using more advanced investment strategies such giving your broker instructions for buying and selling as the prices fluctuate, or agreeing to purchase a stock before a certain date, give you opportunities to actively participate in managing your investments, and potentially make a lot of money quickly. On the downside, a poor strategy can also result in losing a lot of money quickly.
- Learning Markets: Benefits of Investing in the Stock Market
- Securities and Exchange Commission: The Investor’s Advocate
- The Motley Fool: What are the Advantages and Disadvantages of a Diversified Portfolio?
- U.S.Securities and Exchange Commission: Saving and Investing
- Bankrate: Millennials Prefer Cash Over Stocks - and it Could Cost Them Millions
Linda Ray is an award-winning journalist with more than 20 years reporting experience. She's covered business for newspapers and magazines, including the "Greenville News," "Success Magazine" and "American City Business Journals." Ray holds a journalism degree and teaches writing, career development and an FDIC course called "Money Smart."