Investing: equity vs. equities

They are both important terms to know. I sat down with some friends over the weekend and was surprised to find out that a few of them didn’t know much about equity or equities. So, I’ve decided to take some time out and explain this common investing term.

What is equity?

You can have equity in an asset that you own. The largest asset you probably own is your home, which is certainly an investment. Let’s use it as an example. Equity is the difference between what you owe on a home against what it’s worth. So if your home is worth $100,000, and you owe $80,000, then you have $20,000 of equity in your home – 20 percent. Some people have negative equity. They owe $100,000 and their home is only worth $80,000.

You can also have equity in small assets, like a knife set or a flat screen TV.

What are equities?

Equities are generally seen as stocks issued by a company. If you buy stock in Facebook after its IPO (initial public offering), then you own equities in that company. You have a piece of the pie, and therefore, you get to vote and make decisions about issues that have to do with Facebook.  If a company you own stock in performs well, then your stock becomes more valuable. It does the opposite if the company doesn’t do well. Basically, the better a company does the more money you make.

How to buy

In order to buy stock in a company, you’ll need to hire a broker. A good broker will guide you while you’re investing and help make the best choices for your situation.