If you've ever heard of the U.S. Securities and Exchange Commission (SEC), you probably know it has something to do with regulating investing throughout the country. However, you may not know what a security is and why it needs regulating. To help you grasp this facet of investing and handle your own wealth management, below is an introduction to securities in the United States.

What You Need to Know About Securities

Overview

A security is a negotiable financial instrument. This means that you can buy and sell it on a market, and the price varies based on supply and demand. Here are three basic types of securities that people involved with investing can buy or sell: stocks, bonds, and futures.

Stocks

These represent an ownership stake in a company. If the value of the company changes, the value of the stock rises or falls commensurately.

Bonds

These represent an amount of money that's been loaned to a company or government body that they are obligated to pay back in the future. Changes to the organization's creditworthiness are reflected in the value of the bond. The more financially stable the company or government, the greater the value of the bond.

Futures

Futures represent a right to purchase a stock or commodity at today's prices. The value of a future changes as the current price changes. If you have a right to buy corn or wheat at $3 a bushel, and the current price is $4 per bushel, your future is quite valuable. You could buy 10,000 bushels at $3 each and immediately resell them for $4 each and make a quick $10,000.

Why Do Securities Need Regulating?

The SEC protects investors from fraud, ensures the markets—like the Dow Jones and Nasdaq exchanges—run smoothly and fairly, and investigate unethical practices. For instance, it is illegal to commit insider trading. The SEC prohibits trading in securities to your own advantage using confidential or insider information. This unfairly affects the price of a security while withholding crucial information from other investors.

If you'd like to improve your investing strategy and achieve optimal results, contact Headwaters Investment Counsel & Asset Management, a group of experienced financial advisors in Willoughby, OH. They have served clients throughout Lake County and Greater Cleveland for more than a decade. They also specialize in money management and retirement planning. Visit their website to explore their services, or call (440) 399-3359 to make an appointment.