Equity is what you own. It can refer to a few different things:

  1. In a business, equity is what you have left after you subtract the liabilities from the assets. You own a business when you start it yourself, buy the business, buy a piece of the business or accept equity in exchange for your involvement with the company (like for an endorsement).
  2. In an investment, equity is stock you own in a company, no matter how small. Stock is different from owning a bond or commercial paper, which is a debt the company must pay you back.
  3. In a home, equity the difference between what the house is worth and what you owe on the mortgage.

When a business is successful, there are profits. If you own equity in a company, you get to share in those profit. Profits also raise the value of your equity in the business. {This means the pie is getting bigger.}Only an owner receives the profit a business makes. But they also share in its losses. If the business is not successful, the losses will decrease the value of your equity.

Points to remember:

  • It’s all about ownership.
  • Owning part of a thriving business is better than receiving a salary from it.
  • When you buy stock in a publicly traded company, you are buying a very small piece of that company. When the value of the company increases, so does the value/price of the stock you own.
  • If you purchase a house (or apartment in NYC), you want to pay down the mortgage as quickly as possible to increase your equity.

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