A Securities Investment Guide For the New Investor

As a new investor you probably wonder what a securities investment really is. There are basically three investment securities every investor absolutely needs to understand before deciding on a financial investment. Here’s your basic investment guide. Corporations issue equity securities to raise money in the form of common stock; and debt securities to borrow money in the form of bonds. The U.S. government issues debt securities to borrow money from investors in the form of Treasury bills, notes, and bonds. And then there are complicated and risky investment securities like derivatives, where the new investor does not belong.

As a basic investment guide I suggest that the new investor view the world of investments as three distinct and separate segments: savings alternatives, tangible assets, and investment securities. A bank savings account or CD is a savings alternative, not a security. Physical real estate property is a tangible investment or “hard” asset, not a securities investment. Stocks, bonds, and mutual funds are each a financial investment and they are the investment securities that all investors need to understand. Stocks and bonds are originally issued (sold) to the public. Then they trade in the secondary market on exchanges, as in the stock market. Since there is investment risk and the public is involved, these securities are regulated by the government.

Since they trade in organized markets or exchanges, investors have liquidity and can easily buy and sell stocks and bonds. A securities investment can offer higher returns and/or more interest income than money in the bank. Along with this comes higher risk. Common stocks are a financial investment that offers the potential for growth and higher returns. Bonds are investment securities that offer higher interest income. The average investor needs growth and/or higher income to get ahead financially. The question is: how should the new investor approach the subject of making a securities investment? Here’s a basic investment guide. First, learn the investment basics in regard to stocks and bonds. Then start investing in mutual funds.

When you invest in these funds professional money managers pick the stocks and bonds for you and a large pool of other investors. They manage the money. You just pick the fund(s) you want to invest in. The new investor belongs in stock funds, bond funds, money market funds, and/or balanced funds; and not in the likes of complicated and risky derivatives like stock options, swaps, and leveraged or inverse ETFs that invest in derivatives. The mutual fund industry is regulated to protect investors against fraud. Some of the more exotic securities are more difficult to regulate, as proven in the financial crisis of 2008.

Source by James Leitz