Equity is a broad term used to describe assets purchased with borrowed money. In the case of a home, the equity would be the amount of difference between what your house is worth and how much you owe on it. But did you know there are various types of equity?
Equity can apply to stocks, business ownership, or other types of investments. There are three general types of equity that a person can own: Public equity, private equity, and hybrid equity. Take a look at the content below to get more details on each one.
Public equity is equity obtained through shares of stock in a publicly-traded company. These companies are required to make their financial information public. The details include the price per share and how many total shares exist.
In addition, you can purchase stocks through a brokerage company or one's own investment account. For example, the equity is the home value minus the loan amount.
Public equity is when an investor owns stock in a public company, which can be bought and sold through various public exchanges. These exchanges include NYSE (New York Stock Exchange) or NASDAQ (National Association of Securities Dealers Automated Quotations).
Private equity is any type of equity not available to the general public for purchase. This may include equity in a closely held company, an investment fund, or partnerships.
Private equity is quite complex. This is because there are many ways that it is provided for equity owners. For instance, if you partner with another person to start your own business, the resulting ownership percentages would be private equity.
Simply put, private equity is when an investor purchases stock in a private company. These are companies that are not traded on public exchanges. They may be traded privately between investors at some point, but the public typically does not have access to buying shares of these companies.
Hybrid equity is a combination of both public and private equity. An example would be a mutual fund that holds multiple investments from stocks to bonds. In this case, the mutual fund company would have stockholders that they report to on a regular basis.
On the other hand, there would also be privately held investments in the actual assets being invested in. If you invest in a mutual fund, you are receiving dividends on your publicly traded stocks while also having part ownership of the private company.
Mutual funds often hold stock from multiple different companies, some of which may be public. The others are still kept private for the mutual fund's investors' eyes only.
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Understanding the Different Types of Equity
Now that you know about the different types of equity, you'll understand how to use your personal finances to grow your money. The financial industry is a bit complex, but if you know what you're doing, you'll have a greater chance of reaping a financial reward.
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Matt Hoffer is a crypto enthusiast and gamer. When he's not de-constructing the blockchain, you can find him chilling with some lemonade in the shade or playing a round of golf.