Equities—also called stocks or shares—represent ownership in a company. When you buy a stock, you become a shareholder. This means you may benefit from the company’s success, but you also take on the risk if the company performs poorly.
The value of a share can fluctuate—sometimes frequently and sometimes by a lot. This is because shares are exposed to different types of market risk. These include the size and stability of the company, overall economic conditions, and changes in currency values. These risks can affect how much your shares are worth and whether you earn a profit or experience a loss.
Equities generally carry more risk than other types of investments, but they also offer the potential for higher returns over time.
You can make money from equities in two ways:
Capital gains – If the share increases in value and you sell it for more than you paid, you earn a profit (capital gain). If you sell it for less, you’ll have a capital loss.
Dividends – If the company earns a profit and chooses to share it with shareholders, you may receive a dividend. The amount depends on the company’s performance and the type and number of shares you own. Dividends are not guaranteed and may vary from year to year.
May offer dividend payments
Include voting rights to elect directors and vote on major company decisions
May include special features depending on the company
Provide a claim on remaining company assets if the company dissolves (after tax authorities, bond holders, employees, creditors and preferred shareholders)
Usually offer fixed dividend payments, paid before common shareholders
Typically have limited or no voting rights
May include special features like the right to redeem or convert shares
Provide a claim on remaining company assets if the company dissolves (before common shareholders, and up to the face value of their shares)
You can buy equities through an investment professional or a firm registered with the Financial and Consumer Services Commission of New Brunswick.
Full-service dealers – These professionals offer advice and charge a commission each time you buy or sell shares.
Discount brokers – These charge lower fees but do not provide advice. This may increase risk if you don’t fully understand the investment or its documents.
Risk level: High – share prices can fluctuate significantly due to market risk, company performance, economic conditions, and currency changes
Return potential: High – through capital gains and dividends
Liquidity: High – shares can be bought and sold on public exchanges
Use case: Suitable for long-term growth and investors who are comfortable with market ups and downs