For a number of reasons, equity investment has been and continues to be one of the most popular investment options available to those who have access to considerable portions of capital.
An equity investment is capital that is invested in a company by an investment trust or privately into a company by purchasing shares in the stock market. As large companies are often publicly traded, the shares investors can buy are tied to the performance of the stock market and can subsequently witness significant shifts in price.
As more people look to investing to increase their cash flow, investing in large multinational companies has become increasingly more accessible. While investors are still required to have considerable financial backing, the increased access to the market has made investing in equities as attractive as it ever has been. For those who are new to investing in equities, this piece explores some of the more prominent benefits.
Why should you consider investing in equities?
Everyone decides to invest in equities for their own reasons. Equity investors purchase shares of companies with the anticipation that they will increase in value and subsequently receive returns in the form of capitals gains or dividends. While investing in equities may require considerable attention to the performance of the market (if invested privately), they provide investors with an achievable and relatively easy method to diversify an investment portfolio.
What are the benefits of investing in equities?
While the benefits of investing in investment trusts which focus on MNC’s are significant. It is important to note that this sort of investment is not a suitable option for every investor. Due to the nature of the investment, potential investors are often required to invest a substantial minimum investment.
So, what benefits can investors expect to see?
Increased value of the investment.
Arguably the most prominent benefit from an equity investment in large MNC’s is the possibility to increase the value of the original investment. If a company you have shares in witnesses considerable periods of growth internally and externally, this positive performance will naturally reflect in the increased value of their share price. When a company goes through a significant period of success or confidence is placed in a company, shareholders can reap the benefits from the increase in the share price if they choose to sell their stake.
Diversified investment option.
An investment trust or fund will often provide investors with a diversified investment option typically for a minimum or initial investment. A diversified investment option is a form of protection from the risks of investing. If an investor places considerable attention in a single company, industry or sector, they will have a substantial amount of risk attached to their investment and can open themselves up to inadequate returns or significant losses if the value of a share dropped dramatically. However, if an investor spreads their investor over a considerable number of firms or industries, they have a considerable level of protection if one element of their portfolio is not performing.
See returns in two ways
Most investors intend to buy low and then sell high. Through investing in fast-growing companies that grow in value, both day traders and buy-and-hold investors can see returns in two distinct formats. Those who invest in a company or tock for a short amount of time will look to the advantage of the day to day variations and see returns in comparison to their original investment. For those who hold onto their shares, they expect to see the company’s earnings and subsequent stock price to go over time. For those who wish to hold onto their stocks for longer, they will not only receive some form of profit (depending on market performance) from their original investment but also receive regular direct from the company or investment trust.
What are some of the challenges?
While investing in equities is an attractive option, with the potential for significant returns on investment, there are a number of challenges every investor should be aware of when investing.
Every investment has some form of risk attached. Investing in shares that are traded on the stock market have some of the highest levels of risk associated with an investment. As the investor is reliant on the performance of the company, if a company performs poorly, investors will subsequently see the stock price drop and in return, the value of their investment. The level of risk increases in line with a number of certain factors:
- The industry you invest in. Or the number of industries you invest in.
- Your stomach for prices to swing either way.
- How much you invest.
- How you much you can afford.