AI generated--Money market terms--

AI Overview

Securities are the broad category that includes financial investments with monetary value that can be traded, while stocks and bonds are specific types of securities. Stocks are equity securities, representing ownership in a company, whereas bonds are debt securities, which are essentially loans to an entity that pays back the principal and interest. Therefore, all stocks and bonds are securities, but not all securities are stocks or bonds.

Securities (The Broad Category)

What they are:

A broad term for any financial asset with a verifiable monetary value and tradable nature.

Examples:

This category includes stocks, bonds, notes, investment contracts, limited partnership interests, and more.

Purpose:

Securities are investments made with the expectation of generating a profit through the efforts of someone other than the investor.

Stocks (Equity Securities)

What they are: A security that represents a share of ownership in a company.

Investor role: You become a part-owner of the company.

Returns: Profits are generated through stock price appreciation and dividends, which are a share of the company's earnings. Risk: Generally considered riskier and more volatile than bonds because their value depends on the company's performance, with higher potential returns.

Bonds (Debt Securities)

What they are:

A loan to a company or government, where the issuer promises to pay back the principal amount on a specific date, along with periodic interest payments.

Investor role:

You are acting as a lender to the issuer.

Returns:

Investors receive interest payments (coupon payments) and the principal back at maturity.

Risk:

Generally less risky than stocks but can carry credit risk (the risk of the issuer defaulting on payments).

In Summary

Securities: is the umbrella term for financial investments like stocks, bonds, and other instruments.

Stocks: are about ownership (equity).

Bonds: are about lending (debt).