When you invest, you buy something that you expect will grow in value and provide a profit, either in the short term or over an extended period. You can choose among a vast universe of investment alternatives, from art to real estate. When it comes to financial investments, most people concentrate on three core categories: stocks, bonds, and cash equivalents. You can invest in these asset classes directly or through mutual funds and exchange-traded funds (ETFs).

Many financial investments—including stocks, bonds, and mutual funds and ETFs that invest in these assets—are legally considered to be securities under the federal securities laws. Securities tend to be widely available, easily bought and sold, and subject to federal, state, and private-sector regulation. However, investing in securities carries certain risks. That’s because the value of your investment fluctuates as the market price of the security changes in response to investor demand. As a result, you can make money, but you can also lose some or all of your original investment.

Some cash equivalents, which you can exchange for cash with little or no loss of value, may be securities, as U.S. Treasury bills and money market mutual funds are—or they may be insured bank products, such as certificates of deposit (CDs). Cash equivalent securities expose you to less risk of losing money than stocks or bonds do, in part because they tend to be very short-term investments whose values tend to remain stable.

Issuing Stocks and Bonds

When corporations want to raise money, called capital, to expand their businesses or provide additional services, they may issue, or offer, stocks, bonds, or both stocks and bonds for public sale.  A stock offering invites investors to buy an ownership position in the company while a bond offering invites them to make a loan in exchange for the promise of repayment in full plus a certain rate of interest for the use of the money.

Similarly, federal, state, and local governments may issue bonds if they want to raise money to pay for new projects or supplement their tax revenues to pay for day-to-day operations.

When a company sells stock for the first time, it’s called an initial public offering or IPO. A company may also make a secondary or follow-on offering to sell additional shares of its stock to the pubic.  In the case of bonds, each time bonds are sold to the public to raise money they’re called new issues.  Once these public offerings take place, the capital raising is complete and the stocks and bonds trade in their respective secondary markets. The issuing organization does not receive any additional money from secondary transactions.

Public offerings in the U.S. must comply with the federal securities laws and the rules of the Securities and Exchange Commission (SEC). In addition, there are often additional state laws that apply to public offerings, as well as rules imposed by the market in which the offering ultimately trades.