What is equity investing, and how does it work?

Are you looking to grow your wealth through investing? Whether you’re an experienced investor or just getting started, earning a solid return is likely your main goal. One way to diversify your portfolio is through equity investments, for example, investing in the stock market. This page will explain what equity investing involves and what to consider before choosing this option.

Investing in equity involves putting money into a public or private company by buying its shares, making you a partial owner based on the proportion of shares you hold. These shares, often called stocks, are bought and sold on the stock exchange. By owning shares, you gain a stake in the company’s profits and assets; you’re essentially sharing in their success or failure.

Equity investors can be individuals or companies. However much they have to invest, they expect to earn returns in two ways: through dividends (a share of the company’s profits) and capital gains (selling the stock at a higher price than what they paid). While this type of investment can offer the potential for higher returns, it also carries higher risks.

In investing, equity basically means ownership. When you own equity, you own a stake in something valuable. If you buy equity shares in a company, you own a portion of that business. Another common example of equity is the portion of your home’s value that you own after subtracting any mortgage paid.

In a business context, equity represents what shareholders would receive if the company sold all its assets and paid off its debts. This “residual value” is what’s left over for shareholders. It reflects both your share of ownership in a company and the potential gains you could earn as the company’s value grows.

A local entrepreneur in Ireland has developed an app aimed at improving personal finance management. To get the project up and running, they need funding to cover development costs and marketing. The entrepreneur is seeking equity investment to secure this capital.

In this case, the entrepreneur offers 15% of the company in exchange for €200,000. An interested investor sees potential in the app and counters by requesting 25% of the business for the same €200,000 investment. After some negotiation, the entrepreneur agrees to the deal, meaning the investor now owns 25% of the company’s shares.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

There are several common ways to invest in equity, each with unique features that suit different investment goals and risk levels:

• Common stocks – The investor buys shares in a company, earning returns primarily through dividends and potential stock price increases (capital gains). Equity shares of listed companies are the most well-known type. Common stocks can offer high returns, especially in the short term, but also greater risk, since you have limited control over the company’s operations.

• Preferred stocks –  These stocks provide regular dividends that are less affected by market changes, making them more stable than common stocks. However, preferred stockholders usually don’t have voting rights in the company.

• Growth stocks – Growth stocks represent companies expected to grow faster than average, i.e. companies that reinvest their profits rather than pay dividends. Investors look for potential capital gains as the company expands.

• Value stocks – This involves buying stocks believed to be undervalued by the market. Investors expect the stock price to eventually rise to reflect the company’s true value, based on its financial fundamentals, i.e. its dividends and earnings.

• Convertible bonds – These are bonds that can be converted into company shares at a later date, and they are often offered at a discount to the market price. They combine the stability of regular bonds with the potential upside of equity.

There are several other options available for equity investing, including warrants and equity lines of credit, but these are typically used by experienced investors with detailed strategies in mind for their investments.

Investors use various strategies in equity investing to achieve specific goals. They pursue strategies such as those listed here to better decide how to allocate their money based on factors like the stage of the company, potential returns, and their own risk tolerance. 

Here are a few strategies commonly used in equity investing:

• Venture capital: This strategy is commonly used in the private equity sphere and focuses on investing in early-stage startups and small businesses. It offers the potential for high returns, but it also carries high risks, as many startups don’t succeed. This strategy is supported by several government initiatives in Ireland, including the Seed and Venture Capital Scheme, which recently secured €250 million in funding for 2025 to 2029. The focus is primarily on early-stage companies in sectors undergoing a lot of innovation, such as green technology and AI.

• Growth investing: This strategy targets more established companies, in particular those that are expanding or restructuring. This strategy is often considered more stable than others, since the companies involved typically have a proven track record. Investors may turn to this strategy during strong economic periods.

• Leveraged Buyouts (LBOs): This involves a private equity firm acquiring another company using a combination of significant equity and borrowed funds (debt). This approach allows firms to take control of companies while minimising their upfront investment. This is common among private equity investors in Ireland.

To begin investing in equities, you might first ask yourself whether you want to take the do-it-yourself approach or seek professional help. Robo-advisors can be a more affordable option, but a broker might be necessary for the level of investing support you need. Creating a budget can also be helpful for deciding on the investment amount. Investing is generally for the long term, so think about how long you can go without the money you invest.

It’s also important to differentiate between public and private equities. The process for public equities is fairly straightforward. Use an online investment platform to buy individual stocks or invest in equity funds like mutual funds or ETFs (exchange-traded funds). For this option, you open a brokerage account and can start investing in a wide range of publicly traded companies. BlackRock is a market leader in the field, offering various equity funds and ETFs so that investors can easily access the stock market.

Investing in private companies offers fewer options; this option is typically limited to private equity funds, or professional investors who can commit significant capital for extended periods. They are less accessible for everyday investors compared to public equities.

As an individual investor, you might consider what goals you have set – are you investing for retirement, for example, or more general goals? Reading up on other forms of investing, such as ETFs, can also help you decide what is the best strategy for you to embark on. And it’s not just about investing: knowing whether to save or invest your money can give you more ideas about where best to stash your cash.

Before you decide on this form of investing, it can help to remind yourself of the main advantages and disadvantages.

Equity investing carries inherent risks, with the most significant being the potential decline in the value of your shares. If you sell your holdings when prices are down, you could make a loss. However, for long-term investors, this risk diminishes over time, as they can ride out the ups and downs in the market.

While investing will never be completely risk-free, experts have some suggestions for how to manage risk, including:

• Avoiding making hasty decisions during market downturns. Staying invested through market fluctuations can help investors ride out volatility. 

• Spreading your investments across various types of companies and industries. By diversifying your portfolio this way, if one sector performs poorly, your overall portfolio won’t be as heavily impacted.

• Investing in equity-focused funds or those that combine equity and debt can help balance your risk.

While equity investing can offer attractive returns, it’s important to be aware of the risks involved. If a company you’ve invested in experiences financial difficulties, you could potentially lose some or even all of your investment.

If this level of risk doesn’t sit well with you, there are safer alternatives worth considering. One option is a savings account. These accounts are generally regarded as a much more secure way to grow your money. In Ireland, your deposits in banks regulated by the Central Bank are protected up to €100,000 per person, per bank under the Deposit Guarantee Scheme. This means your hard-earned savings are safeguarded, allowing you to focus on your financial goals with peace of mind.