What Are Equities in the Stock Market? (Overview + Examples)

Today, I want to demystify a stock market term that often pops up in financial discussions—equities. Perhaps you came across it recently while looking at your investment account statement. For example, you might have seen the word “equity” as you reviewed your portfolio’s asset allocations, but what does it mean in the context of your entire investment picture?

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On the other hand, you may have heard this bit of investing lingo come up during a chat with your financial advisor, your stockbroker, or your insurance agent who, like many of us in this field, tends to lean a bit heavy on jargon. So, understandably, you want to better understand what it is we’re all talking about.

If you fall into either of those categories—or you’re simply a go-getting investor who is looking to sharpen your knowledge—I’m here to help.

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In this article, I'll provide a clear and concise explanation of what equities in the stock market are, using practical, real-world examples. We'll also explore the fundamental definition of equity as ownership (including how it translates to owning shares of a company like Apple or Microsoft), and discuss the nuances of equities in the form of Exchange-Traded Funds (ETFs). 

My goal is to provide you with a solid understanding of equities, so you can make more informed decisions about your investments and discuss your financial portfolio with professionals, with greater confidence.

What Are Equities in the Stock Market?

In the simplest terms, an equity in the stock market generally refers to a stock. The word "equity" signifies ownership, implying the value of shares issued by a company. 

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Put another way, think about your home. You own it, and it has a certain market value. You likely have a mortgage, which is a specific monetary amount you owe to the bank. The difference between these two figures—what your home is worth minus what you owe—is the equity you have in your home. This concept directly translates to the stock market.

Let’s pretend for a moment you’re an investor who owns stocks like Apple, Nvidia, Microsoft, Alphabet, and Meta. (If you own stocks in these companies, no pretending required!) Holding these stocks means you have equity, or ownership, in these companies. When we talk about owning a stock, we're essentially talking about owning a piece of that company. The more stocks you own, the larger the slice of the company's equity pie you hold.

What About Exchange-Traded Funds (ETFs)?

OK, here's where our industry makes things a bit more confusing, so bear with me. Exchange-traded funds (ETFs) are also classified as equities by the financial services industry, even if they hold bonds, commodities, or currencies. 

This classification can be misleading. For example, when you look at an asset allocation on an account statement and see equities at 92%, it might not accurately reflect the true nature of the holdings if some of those "equities" are actually bond ETFs. 

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Now, why is this the case? ETFs are designed to trade like stocks, and thus, years ago, they were categorized as equities. They continue to be listed this way, which, frankly, is not a great reason. It's one of those industry quirks that bugs me, but as much as I'd like to, I don't make the rules on this.

Remember, Equity Equals Ownership 

Whether it's a direct stake in a company through stocks or a more complex product like an ETF, equities represent a share in some sort of asset. That's really all there is to it. Go forth and make more informed investment decisions for yourself—and don’t forget to impress others with your expanded knowledge in upcoming investment conversations.

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Of course, if you have any questions about your own investment strategy, schedule a time to talk. We’re always here for you and happy to help, even if only as a sounding board to get you pointed in the right direction with your investment strategy.