Equity Security

Securities are tradable financial assets. Equity securities represent ownership, while debt securities, such as bonds, represent loans. Owning an equity security gives you a share in the company's profits and assets, usually after all debts have been paid.

The most common equity security is common stock. Preferred stock is also an equity security, though it has some features similar to debt. Other related instruments include rights to buy new shares and certain types of fund units.

Equity securities offer the potential for high returns through dividends and rising prices, because owners benefit from the company's growth. They also carry more risk than debt securities: dividends are not guaranteed, prices can fall sharply and, in a bankruptcy, equity holders are paid last.

Investors often use the word "equities" to mean shares in general. A portfolio described as 70% equities and 30% fixed income holds mostly shares, with the rest in bonds and similar securities.