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Anonymous
Why is it the riskiest when owning one and how does it actually work?
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Jason Sing
30 Nov 2018
School Of Hard Knocks And Life at School Of Hard Knocks And Life
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Hariz Arthur Maloy
17 Oct 2018
Independent Financial Advisor at Promiseland Independent
Having Equity is owning part of a company.
It's considered risky because the cost of a share of a company can go up or down often and literally overnight in some extreme cases, Companies can go bust and you can lose all your money.
However, it is not the riskiest asset class. Currently crypto is the riskiest asset class (if you even call it one).
So, if you own part of a company, and the company does well, it's share cost will go up, and you will earn a return on your investment, or they might pay dividends from their profit to shareholders and you will earn money.
Buy 100 Stocks @ $1 each. I spend $100.
A year later the company does well and there's more demand, those 100 stocks are now worth $1.20 each. If I sell them, I'll get $120. Or 20% return.
If I keep them, the company might pay out dividends of 3 cents per share. So now I still own 100 stocks @ $1.20 each and got paid $3 for being a shareholder or 23% return in total.
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In accounting, equity (or owner's equity) is the difference between the value of the assets and the value of the liabilities of something owned.
For example, if someone owns a car worth $15,000 (an asset), but owes $5,000 on a loan against that car (a liability), the car represents $10,000 of equity. That is, the $10,000 is his/her own money.
https://en.m.wikipedia.org/wiki/Equity_(finance)