What is meant by the term 'equity' in the investing world?

The term 'equity' in the investing world refers to ownership interest in a company. When an investor purchases equity, they are buying shares of stock, which represent a claim on the company’s assets and earnings. This ownership stake typically comes with voting rights and the potential to receive dividends. The value of equity can fluctuate based on the company's performance and market conditions.

This concept is fundamental in investing, as equity allows individuals to participate in the growth and profitability of a business, unlike loans or fixed-income securities that do not confer ownership rights. Understanding equity is crucial for recognizing how investments can potentially yield returns through appreciation in stock value and dividends, distinguishing it from other financial instruments such as bonds or derivatives.