There are two main options when it comes to investments, debt instruments, and equities. Equity is something you own, such as real estate or stock. A debt instrument represents a loan that you expect to receive a return of your principal along with interest.

Quick examples include a municipal bond or a bank certificate. If you’ve been looking for ways to expand your portfolio, here are the debt investment basics to help make wiser financial decisions. The professionals at Titan Funding can help you navigate this seemingly confusing ground with a little more ease.

What Is a Debt Investment?

A pencil writing "investment" on a piece of paper
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A debt investment is a slightly less risky investment option than an equity investment. These types of investments usually offer a slightly lower yet more consistent return. There are also fewer highs and lows than in the stock market. The market for mortgages and bonds tends to experience fewer price changes than stocks, for better and for worse. Bear in mind that if a corporation is liquidated, its bondholders are paid out first. With mortgage investments, you’ll also find stated interest rates and solid backing, thanks to real estate collateral.

What Is an Equity Investment?

An equity investment allows the investor the possibility of making a fortune. It also provides you with the opportunity to lose it as well. We all know that the stock market is a volatile place sometimes, thanks to the rapid changes in value. These price swings are often based on social, governmental, and political issues and not on the strength of the backing organization. These investments provide an opportunity for those investing to take a higher risk regarding loss for the potential of a substantial reward.

How Is Debt Investment Different From an Equity Investment?

It’s pretty transparent that there are some key differences between debt investment and equity investment. Debt investments, a bond, for example, comes with a stated interest rate, like a loan. Equity investments provide an opportunity for ownership in the company. Stocks make the investor part owners of the organization, proportional to the number of total shares.

There are risks and rewards with everything in the financial world. Debt and equity options are no exception. Depending upon your goals and the risk you’re willing to take, these are both solid options for investment. Debt investments do offer less risk, and if you prefer to have a consistent return, they may be an excellent choice for your next financial venture.

Examples of Debt Investment Options

The premise of debt investment is that the borrower pays back the balance, plus interest, over time. From fixed-income assets to loans, here are some of the most popular options of debt investment.

  • Bonds. Investors pay market value to the issuer of the bond in exchange for guaranteed repayment and scheduled payments. Bonds are issued by businesses or government entities. This type of investment is backed by the backing company’s assets.
  • Debentures. This type of debt investment option is often used to raise short-term capital, usually for a specific project. They’re backed by the credit of the issuer, along with their overall trustworthiness.
  • Mortgages. A mortgage is used to finance real estate purchases such as a home, land, or commercial property. They’re amortized, allowing the borrower to make payments over a certain period of time until the loan is paid. The default risk is there but it is reduced since the property itself is the collateral.
  • Loans. Loans may be the most commonly understood debt investment option. The majority of people acquire a loan at some point. They can be used for various things, such as debt consolidation, vehicle purchase, or funding a starting business venture.
  • Line of Credit. A line of credit gives the borrower a specific amount of credit that they have access to at any point. This amount is based on your credit score and your relationship with the funding source. A line of credit is revolving, meaning that as long as you make their payments, you can continue to draw funds. These may be either unsecured or secured.
  • Credit Cards. Another common type of debt investment option is a credit card. They’re easily accessible, and as long as payments are made on time, borrowers can continuously access their set credit limit. If a balance is carried over month to month, an interest fee is charged that the borrower is also responsible for paying.

Asset Allocation and Debt Investment

Asset allocation plays a significant role in the health of your investment portfolio. The risk you take, the return you’ll receive, and the variety of your portfolio all play a part in your asset allocation. Investments that offer a high return typically have a higher risk involved, though past performance does not indicate the future of your returns. A significant part of having a healthy investment portfolio is having various asset classes, including debt investment.

Whether you decide to purchase bonds, a mortgage, or utilize a credit card, knowing your options is essential before moving forward. If you have any questions about asset allocation, debt investment, or equity investment, don’t hesitate to reach out to a professional at Titan Funding today for help.

Titan Funding is a private money lender that focuses on prioritizing your needs. We’re proud to give both investors and borrowers a chance to maximize their financial potential. Our team of banking professionals has decades of combined experience. Titan Funding offers a wide array of financial products from private money lending, investment opportunities, and more. We’re here to help you with our diverse and flexible options.

If you’re ready to get started on your investment journey or are looking to expand upon your current financial situation, reach out to us today at Titan Funding. Our team of professionals will work with you to develop attractive options designed to diversify your portfolio. You can reach us at 855-910-6434 between the hours of 9 a.m. and 6 p.m. Monday through Friday, or online 24 hours a day, seven days a week. We’re located at 2701 NW Boca Raton Blvd., Suite 105 in Boca Raton, Florida.  Our team members look forward to working with you.