Can an Index Fund be considered an equity?
I know some stocks are considered equities. Can index funds or ETFs be considered equities as well?
Equity is a stock or any security representing an ownership interest. So stocks = equities. Meaning, if you invest in an index fund or ETF that tracks a stock index, like the S&P 500, then you are an equity investor. If you buy an index fund or ETF that tracks a bond index, then you are a fixed-income investor. Hope this answers your question! If you have other questions, consult a fee-only financial planner.
Hello! Good question. Yes, they can. Index funds have the ability to track hundreds of different benchmarks, so it depends on which benchmark an Index fund/ETF is tracking. Benchmarks range from 100% equity, to a blend of equity and fixed income, to even 100% fixed income/alternative investments. Some ETF/Index funds track the S&P, whereas others track sectors of the market, like energy.
Something to remember; two index funds that both are 100% equity does not mean they are taking equal amounts of risk. Some track defensive stocks, such as dividend yielding stocks. Others may track riskier stocks, like technology.
By definition, stocks are always considered as equity, because it is a purchase of ownership in a company. The inverse would be buying debt from a company, such as a corporate bond.
Hope this helps!
David Michael Howard
ETFs are simply a fund of specific investments. If the ETF is a stock fund, for example SPY, then it should be considered equities. If the ETF is a bond fund, for example AGG, then it should not.