What are equities in the stock market?

Hello, I'm Chris McAlpin, Chief Experience Officer at Sound Financial Strategies Group. Today, we're demystifying a term you've likely encountered but may not fully grasp: equities in the stock market. Understanding this term is key to navigating your investment journey, whether you're reviewing your account statement, discussing asset allocation, or simply expanding your financial literacy.

What Are Equities?

At its core, equity represents ownership in a company, typically manifested as stocks. When you own a stock, you're essentially holding a piece of that company, which we call equity. This concept is similar to owning a home: the property's value minus what you owe on the mortgage equals your equity in the home.

Consider companies like Apple, NVIDIA, Microsoft, Alphabet, and Meta to put this into perspective. Purchasing stocks in these companies means you're acquiring equity—you own some of these entities. This ownership gives you a stake in the company's future, sharing in its profits and, at times, its losses.

The ETF Conundrum

Now, let's address a bit of industry quirkiness. Exchange-traded funds (ETFs), even those holding bonds, commodities, or currencies, are often categorized as equities in the financial industry. This classification can be perplexing, especially when understanding your asset allocation. While ETFs trade like stocks, this doesn't necessarily align with their underlying assets, leading to confusion regarding their representation on account statements.

When you hear the term "equity" in the context of the stock market, think of ownership. Despite some of the nuances and industry-specific jargon, the essence of equity is your stake or share in a company or investment. This understanding is fundamental whether you're a seasoned investor or starting out.

Final Thoughts

Understanding equities is a significant step in demystifying the investing world. It's not just about knowing the terms but grasping what they signify about your relationship with your investments. With this knowledge, you're better equipped to engage in informed conversations about your financial future.

Thank you for joining me in unraveling this key investment concept. At Sound Financial Strategies Group, we're dedicated to enlightening your financial path, ensuring you're confident and knowledgeable about your investment choices. Stay tuned for more insights that empower your financial journey. Good luck!