CandleFocus Glossary Editor
An available-for-sale security (AFS) is a form of debt or equity investment in which the investor, usually a financial institution, purchases debt or equity securities with the intention of selling them on the open market prior to their expiration or maturity date.
AFS securities are typically reported at their fair value, and any gains or losses that occur due to gains or losses in market value are recognized in a company's accumulated other comprehensive income (AOCI) account in its balance sheet. The AOCI account is an equity section of a company's balance sheet that lists non-cash earnings and unrealized gains or losses from investments.
Investment firms can categorize their investments in debt and equity securities into three separate categories: held to maturity, held for trading, and available for sale. All three investments can provide the investor with different levels of return and carry different levels of risks. AFS investments are typically seen as carrying lower risk than investments held for trading because they are considered to be long-term investments rather than short-term investments which are often susceptible to market volatility.
Although AFS investments can provide investors with lower levels of risk, they can also provide lower levels of return than more speculative investments. Companies that choose to invest in AFS securities are likely to not benefit from the higher potential returns of more speculative investments, but are often willing to trade those higher returns for the added stability of the lower risk investment.
Overall, AFS investments offer investors the potential for a steady rate of return separate from market fluctuations and provide the necessary stability for long-term investments. AFS investments provide companies with the ability to diversify their investments, spread their risk, and potentially achieve higher levels of return compared to more stable investments. Additionally, AFS investments provide the investor with the ability to capitalize on short-term market fluctuations as the investment can be sold on the open market prior to reaching maturity.
AFS securities are typically reported at their fair value, and any gains or losses that occur due to gains or losses in market value are recognized in a company's accumulated other comprehensive income (AOCI) account in its balance sheet. The AOCI account is an equity section of a company's balance sheet that lists non-cash earnings and unrealized gains or losses from investments.
Investment firms can categorize their investments in debt and equity securities into three separate categories: held to maturity, held for trading, and available for sale. All three investments can provide the investor with different levels of return and carry different levels of risks. AFS investments are typically seen as carrying lower risk than investments held for trading because they are considered to be long-term investments rather than short-term investments which are often susceptible to market volatility.
Although AFS investments can provide investors with lower levels of risk, they can also provide lower levels of return than more speculative investments. Companies that choose to invest in AFS securities are likely to not benefit from the higher potential returns of more speculative investments, but are often willing to trade those higher returns for the added stability of the lower risk investment.
Overall, AFS investments offer investors the potential for a steady rate of return separate from market fluctuations and provide the necessary stability for long-term investments. AFS investments provide companies with the ability to diversify their investments, spread their risk, and potentially achieve higher levels of return compared to more stable investments. Additionally, AFS investments provide the investor with the ability to capitalize on short-term market fluctuations as the investment can be sold on the open market prior to reaching maturity.