The words \u201cequity\u201d and \u201cstock\u201d are often bandied about as though they\u2019re interchangeable terms to describe the same thing. But, while there are many similarities, there are also some key differences between equities and stocks. We summarise what those differences are, and how to approach investing in each.<\/p>
Equity refers to an ownership stake in a company. In other words, how much of a company you own.<\/p>
Let\u2019s say, for example, a company has 5,000 shares, and you own 1,000 of them. This would mean you hold 20% of that company\u2019s equity.<\/p>
There are two main types of equity: public equity, and private equity.<\/p>
Stocks refers to a portion of ownership in a company. Usually when you say you own stock, it\u2019s a fairly generic term rather than a specific amount \u2013 you\u2019d simply say you own stock in Amazon, or Tesco, for example. If you felt inclined to get into the nitty gritty of how much you owned, you might instead talk about how many shares<\/a> (individual units of ownership) you held.<\/p> Given the definitions above, you might be forgiven for assuming that stocks and equity are exactly the same thing. And indeed, the terms are often used interchangeably.<\/p> There are many similarities. Both represent an ownership stake in a company. And, in both cases, the value of that stake will rise when the company does well and fall when it performs badly.<\/p> But there is a subtle difference. Whereas equity can be either public or private, stocks are always public, as they can be traded on public stock exchanges. So when you hear about equity being traded on a stock exchange, it\u2019s almost certainly specifically referring to public equity.<\/p> Basically, all stocks are equities, but not all equities are stocks.<\/p> Stocks are traded on a stock exchange, such as the London Stock Exchange, or the Nasdaq in the US. To buy and sell, you\u2019ll need to open a share dealing account, with a traditional broker or an online share dealing platform<\/a>.<\/p> Public equity is a type of share in a company that can be bought and sold on a stock exchange. Stocks and public equity are effectively the same thing, and the terms are often used interchangeably.<\/p> Private equity is a different matter. This type of share in a company isn\u2019t traded on a stock exchange. While there are professional firms that specialise in investing in private equity \u2013 known (unsurprisingly) as private equity firms, or sometimes venture capital firms, access isn\u2019t as straightforward as it is with stocks for the likes of you and me (individual, non-professional investors).<\/p> However, there are a few ways in which UK investors might be able to invest in a share of a private company.<\/p> Investors should be aware that private equity, particularly if bought directly, can be high-risk. Companies that aren\u2019t listed on an official stock exchange are often smaller and less well-established. This means there is a higher than average risk that they will fail, and you could lose money.<\/p> Potentially. If you invest in private equity through an official government-supported scheme, such as EIS, SEIS or a venture capital trust, you may be eligible for income tax<\/a> and\/or capital gains tax reliefs<\/a>. What you get, and how much, depends on the specific scheme and relies on you meeting certain criteria<\/a>.<\/p>Are equities and stocks the same thing?<\/h3>
How can I buy stocks?<\/h3>
How can I buy equities?<\/h3>
How can I invest in private equity in the UK?<\/h3>
Are there any tax benefits to private equities vs stocks?<\/h3>