Equity investment companies, also known as publicly traded investment companies (LICs), are slightly different from investment vehicles or brokerage firms. Brokerage and securities firms are online trading platforms or brick-and-mortar businesses that use stockbrokers to execute trades for clients. Stockbrokers are licensed professionals, qualified and certified to provide advice on buying and selling stocks, bonds and mutual funds. Stockbrokers build long-term relationships with their clients and create and implement a financial management plan that meets both long-term and short-term financial goals.
Equity investment companies invest in a portfolio of assets such as mutual funds, stocks, private equity stocks, and municipal bonds. These companies have shares that can be traded on a stock exchange through a stockbroker. If it sells part of its investment, they pay taxes on the profits and then pay a dividend to their investors.
A value or share price of a public company is determined by the open market. Valuable investment companies make their investors’ money, while less valuable companies can lose their investors’ money. For investors, this means that shares in public companies can trade at a premium or at a large discount depending on market prediction and analysis of future movements.
Brokers and brokerage firms charge their customers high fees. Stockbrokers are paid on a commission basis, and firms may charge investors trading fees, management fees, or balance transfer fees in addition to commissions. This makes working through an investment firm expensive. These companies have lower fees than other managed funds. However, they charge trading fees. Some of the newer growth companies may also charge performance fees. Investors should weigh fees against potential gains and make decisions accordingly. These fees can eat into any portfolio.
Investment companies do not regularly issue new shares or cancel shares when investors sell or buy shares. Analysts refer to this practice as “closed-end” funds. This closed-loop strategy allows fund managers and analysts to focus on selecting the best investments rather than cash flow. Public companies are subject to the corporate governance and reporting, listing and filing rules of each stock exchange. This makes them legitimate investment opportunities.
Like traditional stocks, these companies are subject to general market volatility and movement. Public companies can be a risky investment, especially during a bull market or boom when investors are looking for higher-quality opportunities. Public companies are a good choice in a bear market when investors are looking for a safer bet and longer-term investments.
When choosing a stock investment company, investors should follow the same standards and criteria as they do for traditional stocks, bonds, and mutual funds. The public company should have documented and proven management, a five-year (preferably longer) track record of solid growth, long-term value, and a management structure that welcomes investment. Equity investment companies are a solid and reliable choice for a volatile market.