What Are Equities?

Equities, also known as shares or stocks, are financial instruments that represent ownership in a company. When you own a share, you own a piece of that business. Equities are more than just numbers on a screen. They reflect real businesses, generating real profits and building real value.

For investors, equities offer the potential for capital growth, dividend income, and play a key role in long-term wealth creation and are often a significant part of any diversified portfolio that has the potential to offer higher returns than many other asset classes, particularly over longer time horizons.

A simple example is:  when you invest €5,000 in shares of a company and its value grows by 10% over a year, your investment would be worth €5,500. If the company also pays a 3% dividend, you would receive €150 in income for that year before tax.

Why Are Equities Important?

Over the long term, equities have often outperformed bonds and cash. They reward patience and disciplined investing.

Equities also give investors a direct connection to business performance. When companies do well, shareholders benefit. This makes equities attractive not just for returns, but for participation in the broader economy.

Dividend-paying stocks can also provide income by distributing a portion of company profits, which is especially valuable in low-interest environments. Alternatively reinvesting those dividends can compound returns over time. Growth stocks on the other hand tend to reinvest earnings into business expansion.

What Influences Equity Performance?

A number of factors shape how equities perform. Company fundamentals such as earnings, revenue growth, debt levels, and management decisions are primary drivers. Market sentiment also plays a role, as investor confidence or pessimism can push prices beyond what fundamentals might suggest.

Broader economic conditions influence equities as well. Interest rates, inflation trends, and GDP growth all affect how shares are valued. Global events like political developments, trade negotiations, or shocks such as pandemics can further impact the performance of both domestic and international equities.

Equities carry risk. Prices can fluctuate significantly in the short term, especially during volatile periods. However, over longer time frames, equities have historically delivered higher returns than other asset classes. As always though, remember that no two days are the same and past performance has no bearing on future performance.

Risk Levels Within Equities

Not all equities carry the same level of risk. Large, established companies, such as multinationals, with consistent earnings and dividend histories are typically classed as lower risk. Medium risk shares might include mid-sized firms or those operating in cyclical sectors like construction or retail. Higher risk equities include startups, emerging market stocks, or businesses carrying significant debt.

Currency exposure is another important consideration. Investing in international equities introduces exchange rate risk, which can either boost or reduce overall returns depending on currency movements.

How Equities Fit Within a Discretionary Portfolio

In discretionary portfolios like Cantor Fitzgerald Ireland’s Optimum Portfolios, equities are a central component to a wealth-building strategy. They are selected, monitored and adjusted by professional investment managers. These portfolios are structured to match each investor’s risk profile, whether the focus is on growth, income or capital preservation.

As they normally have a tendency to outperform other types of assets over the longer term, equities serve as the growth engine within a diversified mix of assets. The allocation to shares is tailored according to the chosen strategy, ranging from cautious to adventurous. This approach blends domestic and global equity exposure with other assets such as bonds, alternatives and cash, ensuring the portfolio remains balanced through different market conditions.

The Cantor Fitzgerald team actively manages equities in these portfolios through three key pillars: selecting individual shares based on in-depth research, choosing specialist fund managers, and adjusting overall equity exposure in response to economic trends. This allows the portfolios to capture growth opportunities while managing risk.

Our clients benefit from ongoing oversight, transparent reporting and direct ownership of underlying securities. For those seeking a hands-off, professionally guided investment solution, within a discretionary framework, our Optimum Portfolios offer both long-term potential and peace of mind.

Written by James Stafford, Business Development Associate, Cantor Fitzgerald Ireland

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