This is the asset class with the largest valuation globally. Equity represents an ownership of the company share. Essentially, the ownership of equity entitles you to receive the future incomes of the company and allows you to decide on the company’s behalf based on the stake owned.

As many asset classes, the equities can be both public and private. The private equity refers to the companies that are not traded publicly and their exchange is more complex, having higher transaction costs.

The public equity can be bought on the public exchanges such as New York Stock Exchange, Nasdaq, or London Stock Exchange. Pretty much each country has a public exchange, however the largest ones are concentrated in US and Western Europe. When we speak of public equities, the control aspect of shares is diminished because of the companies’ enormous size and typically low proportion of ownership that investors can capture.

For example, if you have invested $780 in Tesla on the 30^th of September 2021, you would own only:

 “Your Investment / Total Market Capitalisation of Instrument = 780 / 748,800,000,000.00 = 0.00000010417%%”

which would give you a negligible power to vote.

However, for advantages of public equities, there are many factors that well compensate the drawbacks:

• They are very accessible to most of the investors
• They have above-average expected returns when compared to other asset classes
• High levels of liquidity because of their popularity
• They are a decent hedge for inflation

Overall, they are bread and butter of the financial world. The popularity and liquidity of these investments also create a broad range of derivatives, such as options and CFDs. Also, there are a lot of investments that are dedicated to this asset class by the fund managers in open and closed ended funds, ETFs, and hedge funds.

When speaking about the personal investing, they are considered being the key investments at a younger age due to their long-term risk / reward ratios and are typically being replaced by bonds as the individual is approaching the retirement. For a plain portfolio created from less risky bond investments and equities, the rule of thumb is having “100 – age” proportion of the portfolio dedicated to equities. For example, a 25-year-old individual’s target would be “100% – 25% = 75%”.

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Please note, none of the information on this blog represents the opinion of my employer and all information does not represent a financial advice.