There are many types of investment products to choose from, whether you’re looking to put money away for the future, or hoping for large gains from the money you put in. One choice that investors will need to make is between fixed income and equity investing – but what are the differences between the two?
What is fixed income investing?
Fixed income securities are often referred to as bonds. There are many different types of bonds to choose from: guaranteed equity bonds, index-linked bonds, insurance bonds and more.
When you invest in a fixed income security, you will be purchasing knowing that you will receive regular payouts at fixed intervals, which are used by some as a steady source of income. While fixed income investing is generally lower risk than equity investing, there are some risks: namely interest rate risk, inflation risk, credit risk and liquidity risk.
What is equity investing?
Opt for equity investing, and you will be buying and selling stocks, giving you partial ownership of the companies in which you invest. The companies in question will allow stocks to be sold to the public via an Initial Public Offering (IPO), after which stocks can be regularly bought and sold.
Buying and selling is done via stock markets, with some investors buying and selling on a regular – even daily – basis, and others choosing to hold stocks that they think will rise in price in the long term. While it is possible to be very successful in equity investing, stock prices can fluctuate greatly, so risk levels are higher than in fixed income investing.
Because of the differences between fixed income and equity investing, some investors opt for a portfolio that is a combination of the two. However, your approach will depend on your personal preference, and how risk-averse you are.
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