Financial independence- it’s what we all want, but how to get there? Equity investments offer one powerful means of getting you closer to that goal. Although the prospect of investing may seem intimidating at first, becoming informed of available options and contribution methods can empower you to make smart decisions and help you build wealth in the future. In this article we'll look at what equity investments are, their types, and how you contribute to them.

What Are Equity Investments? 

Equity investments represent ownership in a company. When you invest in equity, you become a shareholder - meaning you own part of that organization as it (hopefully!) grows and prospers, increasing its value as your holding grows in worth over time. Here are some commonly available types of equity investments for individuals:

Stocks (also referred to as shares or equities) represent ownership in a company and represent potential returns through capital appreciation and dividends. By purchasing stocks, you become part of an ownership group within that organization, potentially benefiting from its future success through capital appreciation and dividend payments. You purchase stocks through brokerage accounts, which provide online platforms for buying and selling. 

ETFs (Exchange-Traded Funds) are investment funds that hold a diverse portfolio of stocks, bonds, or other assets but are traded like individual stocks. One ETF can hold dozens or even hundreds of stocks or other investible assets! Think of it like this: you’re in an ice cream shop- a single stock is like one scoop of ice cream, but you want to diversify your flavors a bit. You decide on an ETF: a banana split with three flavors of ice cream, banana, fudge, whipped cream, and a cherry. It’s technically one single item, but it’s made up of a lot of different elements! You can invest in ETFs through brokerage accounts; they may require less capital and provide diversification benefits compared to buying individual stocks directly.

Mutual Funds combine money from many different investors in order to build a diverse portfolio of stocks, bonds or other securities, which are managed by professional fund managers. You can invest in mutual funds via brokerage accounts or employer-sponsored retirement plans like a 401(k). 

We’ve mentioned a few above, but there are various methods for making contributions towards equity investments. Let’s discuss:

Direct Contributions:

These involve purchasing individual stocks or ETFs directly, with investors selecting specific companies or sectors they believe will perform well. To do this you would first open a brokerage account and deposit funds which you would utilize to buy shares of particular stocks or ETFs.

Automatic Investment Plans (AIPs):

AIPs allow investors to make regular contributions automatically into their investment account, creating good investing habits and consistent returns. You utilize AIPs through your brokerage account and set up automatic transfers from your bank account into your investment account at regular intervals. 

Employer-Sponsored Retirement Plans: 

Employers frequently offer retirement plans like 401(k)s to allow employees to contribute a portion of their salaries into an investment account for retirement. Such plans often feature several investment options. Discuss with your employer how to enroll in a retirement plan, select your contribution percentage, and invest accordingly.

Why worry about equity investments in high school?

• Equity investments provide long-term capital appreciation, allowing your investments to increase over time; the earlier you start, the better.

• Investing in stocks means becoming part of the companies you invest in; should those companies thrive, your returns share in their success. 

• ETFs and mutual funds offer diversification capabilities by spreading assets among different assets or sectors for reduced risk exposure.

• Investing can provide an invaluable education about financial markets, economic trends, and long-term financial planning. 

Be mindful of the risks- to some degree all investments have them.

• Equities can be highly unpredictable, with prices often fluctuating in response to various external influences. Therefore, it's crucial that you’re prepared for short-term market fluctuations.

• These shouldn’t be quick decisions! Prior to making investment decisions, you have to do your research. Understand the companies or funds you are investing in and consult financial professionals for advice.

• Equity investments are generally long-term in order to withstand market fluctuations and volatility. Be certain you are comfortable holding onto them over an extended period.

Equity investments can provide you with an effective means of contributing to economic growth and building wealth over time. By understanding their various types and following disciplined contribution methods, you can get on a path toward financial success. From owning shares in individual companies or diversifying through ETFs, mutual funds, or retirement plans; equity offers numerous opportunities to build a brighter financial future.

Bonus Tip: You can simulate your own ETF!

This is a fun way to understand how ETFs work and gain practical experience. Here's how:

1. Pick a theme: This could be anything that interests you, like technology, renewable energy, or ethical brands.

2. Research companies: Choose 5-10 companies that fit your theme. Make sure they are publicly traded and accessible through a brokerage platform.

3. Allocate "funds": Decide how much "money" you have to invest (imaginary or real, with adult supervision for the latter). Divide it proportionally based on your research and company confidence.

4. Track & adjust: Follow your chosen companies' performance over time. This could involve reading news articles, analyzing charts, or using investment apps. Based on your observations, rebalance your "portfolio" by adjusting allocations when needed. This simulates how active managers adjust ETFs.

Benefits:

• This hands-on experience makes learning about ETFs more tangible and relatable.

• You practice research, allocation, and portfolio management, building valuable financial skills.

• You gain firsthand insight into different companies and market fluctuations.

• You can choose a theme that aligns with your values, like sustainability or social responsibility.

Remember, this is a simulation, so I’d suggest prioritizing learning over trying to make real profits. Enjoy the process and explore the world of investing!