Types of securities
To my mind, first of all I should gain an understanding of types of securities. As far as I know there are many types of securities. And how can I choose some of them with the highest expected return and liquidity and the lowest risks? I want understand why I should buy or sell exactly this or that type of security. So let’s try to investigate…
In theory there are several groups of securities:
-
Fixed Income Securities;
-
Units & Trusts;
-
Options, Warrants & Rights;
-
Futures Contracts.
So, equity securities: common shares, restricted voting shares, preferred shares, flow-through shares.
As far as I understand securities of this group have practically the same liquidity. As for expected return: the capital gains potential of common shares is usually higher than for preferred shares of the same company. And return on flow-through shares will depend on the potential tax benefits to the investor. Then risks… The most risky securities of this group are flow-through shares, if I’m not mistaken. But all risks of all of them are moderate to high. So among securities of this group I’ll choose common shares. To my mind the balance of return and risks is the best!
The second group: savings bonds, bonds, debentures, treasury bills (T-bills), Guaranteed Investment Certificates (GICs).
|
Type |
Liquidity |
Expected Return |
Risk |
|
savings bonds |
low |
fixed rate of return |
very low |
|
bonds |
moderate |
fixed rate |
low to high |
|
debentures |
moderate |
fixed rate |
low to high |
|
treasury bills |
moderate |
determined by the difference between the purchase price and the value of the T-bill at maturity |
very low |
|
Guaranteed Investment Certificates |
low |
fixed rate |
low to moderate |
If I’m not mistaken investment of money in treasury bills is more profitable. Yes, among securities of this group I will choose exactly treasury bills.
The third group and investments funds: shares or units of Mutual Funds, shares or units of Closed-End Investment Funds, units of Segregated Funds and shares of Labour-Sponsored Investment Funds.
|
Type |
Liquidity |
Expected Return |
Risk |
| shares or units of Mutual Funds |
low |
depend on the fund’s investment objectives |
low to very high, depend on the type of securities |
| shares or units of Closed-End Investment Funds |
moderate |
depend on the fund’s investment objectives |
low to very high |
|
units of Segregated Funds |
moderate |
depend on the fund’s investment objectives |
low to high |
| shares of Labour-Sponsored Investment Funds |
low |
depend on the performance of the fund’s investments |
high |
Then go units and trusts: limited partnership units and trust units.
|
Type |
Liquidity |
Expected Return |
Risk |
|
Limited Partnership Units |
low and limited to the initial investment |
I don’t belive in high level of income here |
moderate to very high |
|
Trust Units |
low |
I don’t belive in high level of income here |
low to high |
As I understand these two groups of securities aren’t very profitable. Probably I am mistaken or badly came to know the particulars of these types of securities. But I wouldn’t invest my money neither in investments funds nor in units and trusts. I don’t have a great sum of money and want to realize a profit quickly, during a short period of time.
The next group is options, warrants and rights.
| Type |
Liquidity |
Expected Return |
Risk |
| Options |
high |
depend on changes in the market value |
very low to very high |
|
Warrants |
high |
depend on changes in the market value |
very low to very high |
|
Rights |
moderate |
depend on changes in the market value |
moderate to very high |
To my mind this group is very interesting if you have goods and can deliver it by the terms of contract. But if you want only to speculate at the stock market, investments in such types of securities will be too risky.
And finally futures contracts…
| Type |
Liquidity |
Expected Return |
Risk |
| futures contracts |
depend on the type of underlying asset |
depend on changes in the value of the underlying asset |
very low to very high |
Future contracts… Yes these securities are profitable and extensively used securities at the stock market. But… But, as with the previous group, speculation with future contracts is very risky.
So taking into account my own capital, time and expectations of high future return and not very high risks, common shares will be more acceptable type of securities for me…
August 20th, 2006 at 3:00 am
There are lot of securites. Thing is you should allign yourself with that who offers you good limit at cheap price . Trust is the keyword in market.
Regards
sharetipsinfo
January 26th, 2008 at 9:46 am
the debentures are generalised what of cumulative, non-cumulative, convertible and non-convertible,cumulative convertible debentures
January 26th, 2008 at 9:47 am
ok want more litetrature on this