Investing In Securities
In the past, investing in securities required enlisting a broker to manage your account and complete trades on your behalf. This type of arrangement can be expensive, which limited investing in securities to more affluent individuals.
With the advent of the internet, however, came online brokerage services which made investing more accessible to regular people – including those who may not have tens of thousands of dollars to invest. Nowadays, just about anyone can easily open a brokerage account and immediately begin investing with very low fees.
There are two basic types of securities: equity securities and debt securities. Let’s look at the differences.
An equity security represents an ownership stake in a financial asset. The most common equity security is a share of common stock. Corporations issue stock in order to raise capital for their business, and the owner of a stock is considered a part-owner of the business.
Mutual fund shares are also considered equity securities, as they represent ownership of a portion of the portfolio of securities held by the fund.
Profit may be made in equity securities by selling shares at a higher price than they were purchased for. Conversely, an investor may realize a loss by selling shares for less than they were purchased for.
Equity securities can also be profitable by way of dividend income. This happens when a corporation decides to share their profits by declaring a scheduled payment to investors, usually expressed as a dollar amount per share of stock outstanding.
A debt security represents a creditor-debtor relationship between the investor and the issuer. The most common type of debt security is a bond, which is essentially an arrangement by which the issuer borrows money from the investor, agreeing to repay it at a later date while making periodic interest payments during the bond’s term.
Governments and corporations are the most common issuers of debt securities. Because they are backed by the full faith and credit of the U.S. government, Treasury bonds are considered the safest debt securities. In exchange for their low credit risk, Treasuries pay lower interest rates than securities from issuers with lower credit quality.
Regardless of the type of security you decide to invest in, it’s important to do plenty of research and assess the relevant risks before investing.
Fortunately, there is plenty of easily accessible information about investing available online. InvestorPlace is one such source, publishing up-to-date news on investments and trends.
When doing your research, consider things such as the relative riskiness of the investment, your investment objective (e.g., growth or income), your investment time horizon, and your tax situation.
No investment is suitable for everyone, but with proper research and experience, there is profit to be made in the securities markets.
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