Most Reliable Securities

What is a security?

Securities are investments that can be traded on a secondary market. Securities allow us to own the underlying asset without taking possession. That is why securities are very liquid.

Three types of securities

There are three types of securities. They are equities, dept securities and derivative securities.

Equities are shares of a corporation. Dept securities are loans, called bonds, made to a company or a country. To ensure a successful bond sale, borrowers must pay higher interest rates if their rating is below AAA. Derivative securities are based upon the value of underlying stocks, bonds or other assets. They allow traders to get a higher return than buying the asset itself.

Pros and cons

On the one hand, securities make markets more efficient. They simplify the search for those who need investment capital.

On the other hand, since securities are so easy to purchase, individual investors may buy them rashly. What is more, when stock prices fall, they lose their entire life savings as it happened on Black Thursday that caused the Great Depression of 1929.

How to choose a security

We must admit that the investment we select depends on our financial goals, investment preferences, and our tolerance for risk. Personally we think that bonds are more reliable than other securities. As they usually offer stability and certain predictability than most investments. Dealing with bonds, we receive a steady stream of income, for instance,  there are annual returns. We expect to get our principal back in one piece, at the end of the bond’s life. For that reason bonds tend to be more conservative investments than commodities or collectibles.

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