Equities: An investment in companies
Investing in equities means purchasing shares (also known as stocks) of a publicly traded company. When you purchase shares, you effectively become a part-owner — along with all the other shareholders — of the residual value of that company once its debts have been paid.
Equity investments carry a higher degree of risk than the other two asset classes, cash and cash-equivalents (such as Treasury bills) and fixed-income investments (such as Guaranteed Investment Certificates and bonds). However, their potential for growth is also greater, especially when held for longer periods of time.
How Equities Work
The potential return on your equity investment may come from one or both of two sources:
- Dividend income. A portion of the company’s earnings may be paid out to shareholders as dividends.
- Capital appreciation. When you sell your shares, you may receive a higher dollar value per share than you paid for them.
Dividends and share prices will fluctuate, depending on the state of the economy and the issuing company.
There are two main types of shares you may purchase:
- Common shares. These shares typically provide you with voting rights in the company. Common shares are typically purchased if the company is expected to increase in value. You may not receive dividends from these shares. Voting rights usually include the right to elect directors, and the right to vote on proposals for major company changes, such as a merger.
- Preferred shares. These shares do not usually provide you with voting rights in the company. However, preferred shares usually entitle shareholders to receive fixed dividends before the company’s common shareholders do. Preferred shares are usually purchased because dividend payments, rather than an increase in the company’s value, are expected.
Purchasing Equities
Equities are traded through securities exchanges, where shares in member companies are bought and sold. The major Canadian exchanges are the Toronto Stock Exchange (TSX), where senior equities are traded; the Montreal Exchange, where financial derivatives are exchanged; and the TSX Venture Exchange, where junior equities are traded.
As an investor, you can buy and sell stocks through an investment firm registered with a provincial securities commission. You can also trade securities through an online brokerage, such as RBC Direct Investing. Typically, you pay a commission for each trade that you make. There may also be a minimum investment amount required to open a trading account.
Mutual Funds: Another Way to Own Equities
Investing in companies by purchasing shares can provide a good return on your investment. But it can take time and effort to research the companies. A mutual fund is a professionally-managed investment that pools money from many investors and may invest it in stocks, bonds and other securities. In a mutual fund, the fund manager trades the securities in the fund securities owned by the fund for capital gains (or losses), and collects dividends, all in return for a fee.
Investors purchase units. The value of a unit is determined daily, based on the total value of the fund divided by the number of issued units.
With mutual funds, you benefit from having your investment managed by professional fund managers. You can also gain diversification — exposure to a greater range of equities than you could likely obtain by investing on your own.
RBC offers a large variety of mutual funds, so that you can select a fund that offers investments in a particular sector, geographical area or company size as well as diversifying your investment across asset classes.
How to Start Investing Today
To get started with investing your money, visit your local RBC branch and speak with a representative. You can discuss your investment goals and risk tolerance and together, come up with a plan that’s right for your needs.
 Learn more about RBC Funds
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