The primary difference between equity investment and Bookkeeping Services in Knoxville lies in the investor's legal relationship with the issuer and, consequently, their risk, return, and claim to assets.
In short, equity makes you an owner with a claim on profits, while fixed income makes you a creditor (lender) with a claim on regular interest payments.
Equity Investment (Ownership)
Equity investments primarily represent ownership in a company, typically through buying common or preferred stock (shares).
Relationship: The investor is a part-owner (shareholder) of the issuing company.
Primary Instruments: Stocks (shares) and equity mutual funds/ETFs.
Return Source:
Capital Appreciation: The increase in the share price (selling the stock for more than the purchase price).
Dividends: A share of the company's profits, which are not guaranteed and are discretionary.
Risk & Volatility: High. Returns are highly dependent on the company's performance, economic conditions, and market sentiment, leading to significant price fluctuations.
Claim on Assets: Lowest Priority. In the event of bankruptcy or liquidation, equity holders (shareholders) are the last to be paid, after all creditors (including fixed income holders).
Goal: Long-term growth and capital appreciation.
Fixed Income Investment (Debt/Creditorship)
Fixed income investments represent a loan made by the investor to the issuer (a government or a corporation).
Relationship: The investor is a creditor (lender) to the issuer.
Primary Instruments: Bonds (government, corporate, municipal), Certificates of Deposit (CDs), and money market instruments.
Return Source:
Interest Payments (Coupons): Regular, fixed payments made by the issuer over the bond's term. These are generally predetermined and mandatory.
Principal Repayment: The original amount invested is returned on a set maturity date.
Claim on Assets: Highest Priority. In bankruptcy, fixed income holders (bondholders) are paid first, before equity holders.
Goal: Capital preservation and stable, predictable income generation.
This video discusses the relative risk and return profiles of stocks and Bookkeeping Services Knoxville, which are the main components of equity and fixed income investing.