The Basics of a Securities Investment
A securities investment can be a number of different things. The term “security” is used to describe a variety of investments, including stocks, bonds, notes, limited partnership interests, and more.
When a government entity or company needs money to finance projects or provide services, it will often issue these securities to investors who purchase them with the goal of receiving income from the investment, capital gain or both. You might invest in a particular security with the hope that your money will earn more than it would in another type of investment or you could look to capture a tax advantage from a securities investment.
Securities are documented by certificates that outline your interest in the company or government entity. They describe your rights as an investor and the obligation the company or entity owes to you.
Types of Investment Securities
Equity securities are shares of stock reflecting a piece of ownership in a company. Equity refers to both common and preferred shares. The investment in equity can entitle the investor to a portion of the company’s profits, capital gains in the investment, or both.
Debt securities include bonds and debentures that set up the investor a lender to the issuing entity. Government agencies will often issue bonds to fund special projects.
Mutual funds are a type of investment security operated by an investment company which raises money from shareholders to invest in a group of assets. The assets purchased by the investment company are consistent with the objectives of the fund. There are many types of mutual fund approaches and objectives, including growth, value, small-cap, large-cap and foreign stocks.
Other types of securities include limited partnerships, oil and gas leases, options commodity options, and derivatives.
Managing Risk in your Securities Investing
Depending on the nature of the investment, the level of risk will vary. A common concern with any securities investment is the possibility that you will lose the money, the capital, you invest. This is known as capital risk. While some level of risk is to be expected in securities investments, it is important to understand the risk associated with any particular investment and manage risk appropriately in making your investment decisions.
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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.
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