Investment Securities - Introduction
The investment world is divided into owners (those who invest in equities, or stocks) and loaners (those who invest in debt, or bonds). Owning equity in a company is perhaps the most common and widely accessible means by which investors meet their financial objectives. Individual investors become owners of a publicly-traded company by purchasing stock in that company; by doing this, they can participate in the company's growth over time.
Investors may also choose to loan money to companies, governments or municipalities in return for regular interest payments and the eventual return of their principal at a given date in the future. They can purchase Treasuries from the U.S. government for safekeeping, municipal bonds from state or local municipalities across the country (or even as far away as Guam) to save taxes, or corporate bonds from a multitude of companies to provide a regular stream of income payments for retirement. Investment companies also buy these securities, albeit in greater quantities than the individual investor, to make up their mutual funds, which may appear in a variable annuity.
You may not know it, but when you keep your money in a money market account, you are actually lending your money in return for interest. The interest is small compared to other types of loans and you get your principal back very quickly, but you are still lending money.
The three basic types of investment securities are money market, debt (bonds) and equities (stock). Each of these is detailed in the sections below. Another way to classify securities is by the type of issuer. Corporations can issue both stocks and bonds. Governments (such as federal, state or municipalities) can issue either money markets or debt securities.