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How Do I Choose the Best Equity Investment?

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  • Written By: Dana DeCecco
  • Edited By: A. Joseph
  • Last Modified Date: 27 August 2014
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In terms of investment strategy, stocks are considered a principal asset class. Different kinds of equity investment will provide different results. The best equity investment for you will depend on your objective. Income-producing investments use dividend-paying stocks as the preferred asset. Growth stocks typically are used for more aggressive strategies, but they have a speculative nature.

An income-producing equity investment can be accomplished in different ways. The simplest form of this strategy is to buy shares in a dividend-paying company. Dividend-paying stocks are ranked and rated by several online brokers and advisors. The safety of your investment capital would be a major concern if you are buying shares in only one company. Putting all of your investment money into one company could possibly have devastating consequences.

The preferred method of creating a dividend-paying portfolio is to diversify your capital among several stocks. You can research and purchase shares in specific companies to create a custom portfolio. Exchange traded funds (ETFs) are securities that trade like individual stocks. Many ETFs focus on dividend-paying stocks. The most conservative ETFs focus on high current income with capital gains as a secondary objective.

ETFs are considered a diversified equity investment because the security controls shares in many companies. This type of equity investment can reduce specific risk as well as systematic risk. Some ETFs focus more on dividend growth and less on dividend yield. Rising dividends might indicate financial stability and future growth. This investment might provide a steady income and future capital gains.

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Many ETFs and mutual funds are available, and several online resources evaluate these securities. Online brokers provide many services to help you decide which equity investment is best for you. Consistent dividends might be the preferred equity investment for the conservative trader. Capital gains through the rising value of shares might be a secondary objective.

A more aggressive equity investment might involve growth stocks. Most growth stocks do not pay dividends, opting to re-invest the capital into growing the company. These companies typically are more volatile, offering the potential for capital gains.

Reward is always accompanied by risk. This type of equity investment can provide large capital gains through the rise in share value. The risk of a decline in share value makes this type of investment a speculative trade.

The purest form of this investment is buying shares in one growth stock. Before doing so, you should be thoroughly familiar with the concepts of fundamental and technical analysis. Countless online resources are available to learn these trading methods. Brokers offer online courses and classes explaining how to analyze stocks using these methods. Fundamental and technical analyses are used to trade stocks on a short-term to long-term basis.

ETFs that focus on growth stocks also are available. The advantage to a diversified investment is risk mitigation. One company might fail without causing a total investment failure. Another choice is to create your own custom diversified portfolio by investing in different companies. A portfolio combining growth stocks and income stocks might be the solution to your investment objectives.

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