Navigating the realm of investing can sometimes feel like learning a new language. One of the most common terms is “securities” and it’s important to understand what it means. There is a diverse array of options available to investors, and how they operate is vital for informed decision-making. This guide offers investors an overview in understanding securities, empowering you to make more informed investment choices that suit your unique needs.
Understanding Securities: Defining the Term
Securities represent financial instruments that hold some form of monetary value, tradable on the market. These can include stocks, bonds, mutual funds, ETFs (Exchange-Traded Funds), and more. We’ll review these – and more – below to help you in understanding securities as you navigate your investment journey.
Stocks
Stocks, or equities, represent ownership in a company. Investors purchase shares of a company’s stock, entitling them to a portion of the company’s assets and profits. If you’d like to know more about the nuances of stock ownership, including voting rights and potential dividends, check out this resource.
Bonds
Bonds are debt securities issued by governments or corporations, representing a loan from the investor to the issuer. The issuer promises to repay the loan with interest over a specified time. You
can learn more about bonds, including interest rates, maturity dates, and credit ratings, in this helpful Wall Street Journal article.
Mutual Funds
If you’re working on understanding securities, you’ve likely come across mutual funds. Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Investors buy shares of the mutual fund, which is managed by a professional portfolio manager. They can be beneficial for investors seeking diversification without the need for direct security selection.
Exchange-Traded Funds (ETFs)
ETFs are similar to mutual funds but trade on stock exchanges like individual stocks. They typically track an index, commodity, or a basket of assets. ETFs offer flexibility and diversification advantages, often with lower expense ratios compared to mutual funds.
Derivatives
This tends to be one of the more challenging aspects of understanding securities. Derivatives, such as options and futures, derive their value from an underlying asset. They allow investors to speculate on the future price movements of the asset. There are various risk and reward aspects of derivatives for investors interested in advanced investment strategies, but this type of security isn’t for everyone.
Real Estate Investment Trusts (REITs)
REITs are companies that own, operate, or finance income-generating real estate. Investors buy shares in these companies, allowing them to benefit from income-producing real estate assets – without having to manage properties directly. With REITs, investors get the advantages of exposure to real estate without direct property ownership.
Commodities
Commodities is a term that some people mistakenly interchange with securities, yet they aren’t the same thing. Commodities encompass raw materials or primary agricultural products that can be bought and sold, such as gold, oil, or agricultural produce. Investors can trade commodity futures or invest in commodity-based ETFs to gain exposure.
Foreign Securities
Understanding securities also means recognizing that investors can access international markets through foreign securities. This allows for exposure to different economies and currencies. Though investing in foreign securities isn’t right for all investors, it can help some to diversify their portfolios globally.
A Note on Professional Advice and Due Diligence
Understanding securities – and investing in them for your future – requires thorough research and often professional advice. Do your personal due diligence before investing in any of the securities mentioned in this article and consider consulting a financial advisor to get assistance with understanding securities and choosing the best mix for your portfolio.
Understanding Securities Leads to Financial Empowerment
Securities play a pivotal role in the world of investments. This guide has provided an overview of various securities, including stocks, bonds, mutual funds, ETFs, derivatives, REITs, commodities, and foreign securities, but there’s much more to learn.
At Riverside Wealth Advisors, we help our clients make informed decisions and feel confident about their investment portfolios. By truly understanding securities, investors can make more informed decisions and tailor their investment strategies to align with their financial goals and risk tolerance. Contact us today to learn more about how we can help you build greater wealth and financial security. Here’s to an informed and empowered investment journey!
