In our recent seminars, one of the most asked questions was “What is a security?” For the first time participant, the word may sound alien or may mean another thing for some. Such as the word security in “security guard”.
A new investor may already probably know what securities are but are not just aware that they are called by that name.
Now, what really are securities? Prior to Facebook, iPhones, Androids, Instagrams, or Google, regular investors would usually receive paper certificates as proof of their investment. And these were plainly called securities.
But today, a “security” may refer to any or all kinds of paper investments such as stocks, bonds, mutual funds, UITF’s, ETF’s, etc.
To make it more simpler to understand, a security may refer only to intangible investment vehicles. So a gold bar or a condo unit can not be considered as “security” since they are tangible (or can be touched by your hands, duh). But a “gold fund” or an REIT (real estate investment trust) are of course falling under those classified as securities.
The Basic Things You Need To Know About Securities
Basically, there are two kinds of securities. These are debt securities and equity securities.
Debt securities are more popularly known as fixed-income securities in the Philippines. These include government bonds, corporate bonds, treasury notes, retail treasury bonds, long term negotiable certificates of deposit (LTNCD’s), or even time deposits.
These are called debt securities because whenever an investor like you purchases a bond or opens a time deposit account, the bank or the corporation or government that sells them is now indebted to you.
In Tagalog, may utang ang bangko o kumpanya o gobyerno sa iyo.
Equity securities, on the other hand, are the most popular type of financial instrument and is considered as the bedrock of all types of investment vehicles.
These are commonly referred to as stocks. They are also called “shares” because an investor like you has a stake in a company you buy in the stock market.
The beauty about both debt and equity securities is that they can be redeemed and cashed out anytime you want (except for bonds with long-term tenor or those with holding period).
In short, these are liquid investments. Remember that liquidity is very important especially if your time and monetary targets or goals are just right within your reach.
From the proceeds of these securities you can now easily buy the things that you need or want, or provide the needed cash to address your goals.
Which Should You Invest In?
Before deciding which of these securities you should invest in, you always have to consider the risks and rewards behind them.
Are you a high-risk taker? Or are you of a more conservative type of investor?
Keep in mind these overused but always true statement: The higher the risk, the higher the returns. The lower the risk, the lower the returns.
In this case, equity securities are in the higher end of the risk bar while debt securities are on the lower end of it.
But remember, even fixed income securities can not guarantee “fixed returns” and may lose value over time although the possibility is very much lower than that of equity securities.
How Can You Purchase These Securities?
Debt securities such as bonds and bills can be purchased via banks and other mandated government financial institutions.
Pooled funds that are invested in these debt securities can be availed through a mutual fund company or a bank.
Equity securities such as stocks can be bought via a stockbroker through traditional or online means.
In investing, it’s always best to diversify or as they popularly say, “put your eggs in different baskets.”
As a final reminder, investors should always take a closer look first and analyze the investment vehicle being offered to them before entrusting their money to brokers or fund managers.
Study first before investing.
Continue to receive more information about financial instruments and investment vehicles by subscribing to RockToRiches|BurnGutierrez.Com for FREE.
Rock your way to abundance!
—
—
If you want me to coach you in improving your finances, type your name and email below and click the Subscribe button: