Investing your money is an excellent way to accumulate wealth and increase your financial stability. Today, there are many investment options, including equities (stocks) and securities. However, for beginners, understanding these terms can be a daunting task. In this post, we’re going to take a deep dive into some of the common types of equities and securities that you should know as an investor.
Common Types of Equities
Equities are stocks representing ownership in a company. Investors purchase equities from companies in the stock market. The most common types of equities are common stocks and preferred stocks.
Common stocks: Every public company has common stocks that are available for purchase by anyone. The investor, by purchasing common stock, earns an ownership stake in the company and benefits from its profits and growth. However, shareholders have a lower priority in payback from the company’s earnings.
Preferred stocks: These differ in that investors receive their share of the company’s profits and earnings before any dividends are given to shareholders who own common stock. Additionally, preferred stocks may offer better yields and fewer risks compared to common stock.
Common Types of Securities
Securities are financial instruments that allow investors to buy, sell, and trade them on a financial market. The most common types of securities are bonds and mutual funds.
Bonds: These are debt securities issued by public and private organizations, including governments and corporations. They allow investors to loan money to these organizations and provide periodic interest payments in return to the investors. Bonds have fixed terms, and the investor receives their money back at the end of the term.
Mutual funds: In contrast to stocks, mutual funds offer diversified investments that pools investors’ funds to invest in different financial assets, such as stocks and bonds. Investors own shares, usually with a manageable investment amount, and receive profit earnings based on a pre-set formula the mutual fund establishes.
Growth Stocks vs. Value Stocks
Investors look for both value and growth stocks. Value stocks are undervalued assets expected to perform better in the long term, while growth stocks are issued by companies growing rapidly that offer potentially high returns.
Value stocks: These are stocks that are currently out of favor with investors because of under-performing quarters, possibly a disappointing quarterly report, or other reasons leading to a negative perception of the company. These stocks have a high dividend payout ratio and are well-established companies.
Growth stocks: In comparison, these stocks represent companies expecting growth in revenue and earnings that are higher than average market expectations. Investors need to buy these stocks when they’re priced lower, before the expected earnings.
Dividend Stocks vs. Non-Dividend Stocks
When investors purchase stocks, they benefit from the company’s earnings, either through receiving a dividend or through the eventual sale of the stock.
Dividend stocks: These are stocks offered by companies that pay dividends to their shareholders, usually issued quarterly. They offer the potential for more income from the company’s profits, making it an attractive option for many investors.
Non-Dividend stocks: These stocks, as the name suggests, do not pay dividends to shareholders. The investor, however, makes a profit from the stock value appreciation. Non-dividend stocks are more likely to reinvest earnings back into the company’s growth, leading to potential growth in the stock value.
Investing in stocks and securities can be a wise decision for anyone who is looking to secure their financial future. As you can see, equities and securities come in many forms, each with its own benefits and risks. It’s essential to research each type of investment before investing, and work with a financial expert who can help you understand the risks and rewards of each type of investment. Make sure to take your time and invest wisely for your portfolio to yield positive results over the long term!