Earlier this week I was talking to a new client about equities, bonds, spot rates, ETF’s and the ilk but there was a problem.

There was a glazed look that descended whenever I talked about anything with a financial term. Thank the stars that I didn’t start on derivatives.

This happens once in awhile and it isn’t the clients fault. It’s mine.

Due to the lack of financial education in schools, if you didn’t study business or a finance related subject, you may have no idea what any of these terms mean.

The only thing I could do was say: “Let’s slow this down a bit as I can tell you have a question.”

His answer was: “What’s the difference between a stock and an equity?”

I failed by not reading the signs and jumping straight forward without basing the client’s knowledge with his needs.

When you exchange some of your hard-earned cash for a bit of a company, this is a stock or a share.

In general terms, if the company does well, the price of the stock will go up. On the flip side, generally speaking, if the company doesn’t do too well, the price will fall.

You can earn money two ways from owning stocks or shares in a company.

The first is you may decide to sell your stocks or shares in a particular company.

If the price you sell them for is higher than the price you bought them for, you make a profit. This is also known as “crystallising”. Again if you sell when the price is lower than when you bought the piece of the company, you will take a loss.

This is the risk of having stocks or shares which fall under the umbrella called “equity investments”.

The second way you make money from stocks is through dividends.

Some companies, when doing well and possessing cash reserves (money in the bank), may decide to pay out a little bit of money either once, twice or four times a year to their loyal shareholders.

It isn’t a great amount, but there are investment firms looking at companies who pay regular dividends to generate a higher return for their clients money than normal bank savings accounts.

There are no strange or stupid questions when it comes to your money.

You worked for it so ask away. That’s what we get paid to do.

It isn’t just to buy and sell some stuff once in awhile. It is to tailor our services to each individual client, and if that includes a bit of background education, well so be it.

Paul McLardie is a partner at Total Wealth Management. Contact him at Paul.mclardie@t-wm.com