Financial securities , also referred to as financial instruments or financial assets, is a generic term used to describe stocks , bonds , money market securities e. Financial assets are claims on the income generated by real assets or claims on income from the government.

Real assets are the land, buildings, equipment and knowledge used to produce goods and services. The main purpose of this article is to elucidate, compare, and contrast different ways of classifying financial securities. The sections on individual financial securities consist mainly of links to other Bogleheads Wiki articles on the specific types of securities. A clear and concise, high-level classification of financial securities is provided by Bodie , Merton BM.

Debt instruments are also called fixed-income instruments. Debt assets with maturities of less than one year are traded in the money market. Long-term debt and equity securities are traded in the capital market. This description is reasonably consistent with the classifications discussed below. Financial securities can be classified in many different ways.

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Several "taxonomies" are presented below. Although there are minor differences in terminology and categorization, they generally are in agreement. There is a clear distinction between debt, equity and derivatives, and debt is separated into shorter-term debt securities generally with maturities of less than one year and longer-term debt securities.

Bodie, Kane, Marcus BKM present this high-level classification of financial securities: Elton , Gruber , Brown , Goetzmann EGBG present this high-level classification of financial securities: Although BKM use the term "security" and EGBG use the term "instrument", both sources use the terms interchangeably in their texts. One difference between the BKM and EGBG classifications, primarily one of terminology, is whether or not fixed-income includes money market securities.

Money Market Instruments

BKM classify bonds and money market securities as fixed-income securities. This is useful since the most important asset allocation decision is the ratio of higher-risk assets stocks to lower-risk assets bonds and cash. A secondary asset allocation consideration is the maturity of the debt securities lower-risk assets , the shortest-maturity securities being money market securities.

Both BKM and EGBG distinguish money market short-term debt securities from capital market long-term debt securities.

It is clear that both bonds and money market securities are debt securities , so here the term "debt securities" will be used to describe money market securities, bonds, and other fixed-income capital market securities e. Although not clear from the classifications shown above, both sources describe preferred stock as a hybrid security. BKM classify preferred stock as an equity, but note that it is similar to both equity and debt.

EGBG classify preferred stock as a distinct capital market instrument , but describe preferred stock and mortgage-backed securities as "not so fixed income securities".

BKM also present a more detailed classification of financial securities, broken down by market,: Reilly classifies investments by asset class, with more of a focus on investment opportunities for the investor. Non-financial assets real assets also are included. Classifying bank deposit accounts as a type of fixed income investment is useful for the individual investor, since FDIC-insured deposit accounts are comparable to money market securities in terms of safety and liquidity, and may provide similar if not higher yields.

Note that Reilly classifies T-bills as capital market securities, whereas the other sources classify them as money market securities. The latter is more common; see for example the Wikipedia articles Capital market and Money market. Debt securities , sometimes referred to as fixed-income securities, include money market securities and capital market debt securities such as notes, bonds, and mortgage backed securities.

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Money market securities are debt securities with maturities of less than one year. Money market securities of most interest to individual investors are treasury bills T-bills and certificates of deposit CDs. See the linked articles for details. Capital market debt securities are debt securities with maturities of longer than one year.

Examples are notes, bonds, and mortgage-backed securities. Equity is another word for "stock", and represents an ownership share in a company. Common stock is a type of equity security. As noted in previous sections, preferred stock can be considered either equity or debt, since it has characteristics of both; it is included here as an equity security.

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