What Every Investor Should Know
A Handbook from the US U.S. Securities and Exchange Commission. A publication of the Office of Public Affairs, Policy Evaluation and Research U.S. Securities and Exchange Commission -- July 1994
Section 1. The Securities Markets- The term securities encompasses a broad range of investment instruments, including stocks and bonds, mutual funds, options, and municipal bonds. Investment contracts, through which investors ...
- Section 2. How Investors Are Protected
- Under the federal securities laws, the individuals and organizations engaged in the business of buying and selling securities have a great deal of responsibility for regulating their own ...
- The Role of the SEC
- The SEC, an independent agency of the U.S. Government, was established by Congress in 1934 to administer the federal securities laws. It is headed by five Commissioners, appointed by the ...
- Full Disclosure
- Before any company offers its securities for sale to the general public (with certain exceptions), it must file with the SEC a registration statement which includes a prospectus. In its ...
- Regulation Of The Securities Industry: People, Firms and
- Markets Another important part of the SEC's role is supervision of the securities markets and the conduct of securities professionals. The SEC serves as a watchdog to protect against ...
- Section 3. Types of Investments
- There are two broad categories of securities available to investors--equity securities (which represent ownership of a part of a company) and debt securities (which represent a loan from the ...
- Investment Stocks
- The type of equity securities with which most people are familiar is stock. When investors buy stock, they become owners of a share of a company's assets. If a company is successful, the price ...
- Corporate Bonds
- Corporate bonds generally are issued in denominations of $1,000. This is the face value of the bond, and is the amount the company agrees to repay to the bondholder when the bond matures. ...
- Municipal Bonds
- Rating agencies also evaluate the bonds issued by state and local governments and their agencies, taking into consideration such factors as the tax base, population statistics, total debt ...
- Stock Options
- Options are known as derivative investment instruments because their value derives from the security on which they are based. Stock options are contracts giving the purchaser the right to buy ...
- Investment Companies
- Companies or trusts that principally invest their capital in securities are known as investment companies. Investment companies often diversify their investments in different types of equity and ...
- Investment Contracts and Limited Partnerships
- Investors sometimes pool money into a common enterprise managed for profit by a third party. This is called an investment contract. Such enterprises may involve anything from cattle breeding ...
- Real Estate Investment Trust (REIT)
- Real estate investment trusts are set up in a fashion similar to investment companies. Instead of investing in stocks or bonds, however, REIT investors pool their funds to buy and manage real ...
- Government Securities
- The U.S. Government also issues a variety of debt securities, including Treasury bills (commonly called T-bills), Treasury notes, and U.S. Government agency bonds. T-bills are sold to selected ...
- Section 4. How To Choose An Investment
- If you are thinking about investing your money in securities, it is important to obtain reliable information about your potential investments. If you are unsure about how to proceed, you may ...
- Get Information
- Among the many sources of information on securities are: Corporations: Many public companies will send copies of their annual and quarterly reports free of charge to ...
- Protect Yourself
- You should be as careful about buying securities as you would be about any other costly purchase. The vast majority of securities professionals are honest, but be aware that misrepresentation ...
- Section 5. Getting Started
- Once you have reviewed your personal financial circumstances and goals and have decided that a securities investment is appropriate for you, you will be ready to take steps to select a brokerage ...
- Types of Brokers
- Broker-dealers vary widely in terms of the services and products which they offer their customers. Some have large staffs of professionals to research various types of investments and provide ...
- Commission Rates
- The commission charged for a particular transaction may vary substantially from firm to firm. Most firms maintain an established commission rate structure, which they will apply to a given ...
- Opening An Account
- Don't be shy about talking with registered representatives (sometimes known as account executives) at several firms to find the person with whom you can establish a good working relationship ...
- Types of Accounts
- Generally, there are two ways to purchase securities -- through a cash account or through a margin account. With a cash account, the investor must pay the purchase price in cash no later than ...
- Protection For Your Account
- Investors may be concerned with the safety of securities and funds which are held in brokerage accounts. For instance, what would happen if the brokerage firm were to go out of business? To ...
- Section 6. Trading Stocks and Bonds
- A transaction in which a stock or bond is sold from one owner to another is often referred to as a trade. Individual investment objectives dictate whether investors engage in frequent trading ...
- Stocks
- Stocks may be designated as common, the most widely known form, or as preferred. The latter is so called because its holders have some priority over owners of common stock regarding dividends (...
- Foreign Securities
- Foreign corporations wishing to sell securities in the United States must register those securities with the SEC. They are generally subject to the same rules and regulations that apply to ...
- Corporate Bonds
- Corporate bonds generally are issued in denominations of $1,000. This is the face value of the bond, and is the amount the company agrees to repay to the bondholder when the bond matures. ...
- Municipal Bonds
- Rating agencies also evaluate the bonds issued by state and local governments and their agencies, taking into consideration such factors as the tax base, population statistics, total debt ...
- U.S. Government Securities
- Like state and local governments, the U.S. Government also issues debt securities to raise funds. Because these are backed by the federal government itself, they are considered to have maximum ...
- Stock Options
- Options are known as derivative investment instruments because their value derives from the security on which they are based. Stock options are contracts giving the purchaser the right to buy ...
- Section 7. Investment Companies
- The typical investment company, whether organized in the form of a trust, partnership, organized group, or corporation, is engaged primarily in the business of investing in securities. Of the ...
- Open-End Investment Companies
- An open-end investment company--usually known as a mutual fund--is a company with a' portfolio of securities managed in accordance with stated investment objectives and policies that will buy ...
- Closed-End Investment Companies
- Unlike a mutual fund, a closed-end investment company does not continuously offer to buy back its shares at the option of its shareholders. In addition, a closed-end company usually does not ...
- Unit Investment Trusts
- The portfolio of securities of a unit investment trust is fixed and not actively managed. However, as with mutual funds, interests in a unit investment trust are redeemable at their net asset ...
- Variable Annuities
- Variable annuity contracts are sold by insurance companies. Purchasers pay a premium of, for example, $10,000 for a single payment variable annuity or $50 a month for a periodic payment variable ...
- Investment Company Prospectuses
- If you are considering an investment in an open-end investment company, unit investment trust, or variable annuity, or in a primary offering of a closed-end investment company, you should obtain ...
- Section 8. Once You've Made Your Investment
- Once your investment has been made, it is very important that you take all the steps necessary to protect it. This will include safeguarding certificates, keeping necessary records, and ...
- Keeping Securities Safely
- Today, many debt securities are in electronic book-entry form. Ownership is transferred via computer rather than via actual transfer of paper certificates, reducing the possibility of loss, ...
- Monitor Your Account
- Examine carefully and promptly any written confirmations of trades that you receive from your broker, as well as all periodic account statements. Make sure each trade was completed in accordance ...
- Expectations Of Your Broker
- If your broker-dealer makes investment recommendations, those recommendations must be suitable to your financial situation and investment objectives. This does not mean that you are protected ...
- If Problems Arise
- As with any business relationship, in dealing with your brokerage firm, there may be situations in which errors or operational problems occur. Your first step to try to promptly resolve these ...
- Section 9. Glossary of Investment Terms
- AskThe lowest price a broker asks customers to pay for a security. Beneficial Owner The true owner of a security which may, for convenience, be recorded ...
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