If you want to invest in equities, bonds, and stocks, what differences should you know?

Why Is It Important to Understand the Differences Between Equity Securities, Debt Securities, and Stocks?

Choosing assets for investment is not an easy task, especially when deciding between equity securities, debt securities, and stocks, each of which has distinct characteristics. Investors who do not understand these differences often make incorrect investment decisions, resulting in returns below their goals or facing higher risks than they are willing to accept. This article will help you understand the nature of each type of investment asset so you can build a more balanced investment portfolio.

Clear Comparison: How Do Equity Securities, Debt Securities, and Stocks Differ?

What Does Equity Securities Mean? How Many Types Are There?

Ownership and Rights

Equity (Equity) Securities are documents that show you are a partial owner of a company. When you purchase equity securities from a company, you gain the right to receive dividends from profits and have voting rights at shareholder meetings. However, if the company goes bankrupt, you will be the last to receive any remaining funds after all creditors are paid. Therefore, investing in equity securities carries a higher risk compared to debt securities.

Types of Equity Securities

Common Stock (Common Stock) is the most common form of equity security. Common shareholders are entitled to dividends, voting rights, and a return of capital proportionally if the company liquidates.

Preferred Stock (Preferred Stock) is a hybrid security that combines features of stocks and bonds. Preferred shareholders do not have voting rights but receive fixed dividends and are paid before common shareholders in the event of liquidation.

Warrant (Warrant) is a derivative security that grants the right to purchase shares from the company at a specified price and time. Investors profit from the price difference.

Stock Markets: Where Equity Securities and Stocks Are Traded

Primary Market (

The primary market is where companies issue new securities to raise funds from investors for the first time. It is divided into two types:

• Private Placement )PP(: The company offers securities to a limited number of investors (up to 35) or financial institutions without opening to the general public.
• Public Offering )PO(: The company offers securities to the public after approval from the Securities and Exchange Commission (SEC).

) Secondary Market ###

The secondary market is where investors buy and sell securities that have already been issued, essentially a transfer between holders. It includes:

• Thailand Stock Exchange (SET): For large companies with paid-up capital of at least 300 million THB.
• MAI Market (Market for Alternative Investment): For mid-sized and small businesses with growth potential, with paid-up capital starting from 20 million THB.
• Over-the-Counter (OTC): A market where buyers and sellers transact directly without using the stock exchange.

Mutual Funds: An Alternative Investment in Securities

( Mutual Fund Securities )

Mutual Funds pool money from many investors to be managed by professional fund managers. Each investor holds units ###Unit( representing their share of the fund. The value of each unit depends on the total value of the fund’s assets.

) Benefits of Investing in Mutual Funds

• Managed by experienced professionals
• Allows investment across various asset types (stocks, bonds, warrants, other securities)
• Diversifies risk by spreading investments across multiple securities
• Convenient and easy to buy/sell, no need to monitor the market actively
• Provides regular dividends

Risks to Know: Equity Securities vs. Debt Securities

Investment Risks of Equity Securities

Investing in equity securities involves several risks:

• Price Risk: The value of securities can change rapidly with market conditions.
• Business Risk: The company’s performance may decline due to poor management.
• Debt Risk: The company may have excessive debt.
• Economic Risk: Economic crises or geopolitical events can impact the market.
• Dividend Risk: The company may not be able to pay dividends in years of loss.

( Investment Risks of Debt Securities

Debt securities are generally lower risk but still carry certain risks:

• Default Risk: The issuer may fail to make payments as agreed.
• Interest Rate Risk: Rising interest rates can decrease the market value of existing bonds.
• Issuer Risk: The issuing company may pay lower interest than expected or face financial difficulties.

Which Securities Match Your Risk Tolerance?

) For Those Willing to Take High Risks

If you can accept losses and seek higher returns, equity securities, especially common stocks, are suitable. Investors in high-growth companies can potentially achieve higher gains.

For Those Seeking Stability

If you prefer steady income and lower risk, debt securities such as government bonds or high-credit corporate bonds are more appropriate.

Balanced Portfolio: Diversification

Smart investors diversify their portfolio:

• 60% in equity securities ###common stocks + preferred stocks + mutual funds###
• 30% in debt securities ###bonds + corporate bonds(
• 10% in other securities or cash for liquidity

This ratio can be adjusted based on your age and goals.

Regularly Evaluate Your Investment Performance

Investing in equity securities is not a set-and-forget activity. You should review your portfolio every 3-6 months to:

• Ensure the portfolio remains balanced
• Replace underperforming assets
• Adjust proportions based on market conditions and personal circumstances
• Gradually shift toward a safer portfolio as retirement approaches

Summary

Choosing between equity securities, debt securities, and stocks does not have a one-size-fits-all answer. It depends on your personal situation, investment goals, and risk appetite. By understanding the characteristics and differences of each security, you can build a balanced and suitable portfolio, increasing your chances of profit while managing acceptable risks.