It’s a bittersweet day. Aunt Ida has died. But, you’re consoled by the fact she left you a tidy sum of money. She had no children of her own, and you were her favorite relative, so you got the cash and other assets.

Since you were very fond of her, you want to do something constructive with the money; she was always a practical woman, and you know she wouldn’t approve of you spending her legacy frivolously. But, where to invest the money?

Debt vs. equity will be your starting point, because those are the two key pillars of investing. If you loan the money, whether to your cousin Charlie or to a huge corporation, you are investing in debt. If you loan it to a huge corporation, you’ll be buying a bond and earning interest. If you loan it to Charlie you’ll be earning... well, never mind!

On the other hand, if you buy stocks or mutual funds (which are bundles of stocks), you’ll be investing in equity. And, when you invest in equity, you become a shareholder, and entitled to a share of the corporation’s profits, if any. In addition, equity investors may be able to sell their shares for more than they paid, earning a capital gain; but, this is uncertain.

Generally, investing in debt (bonds and loans) is more secure than investing in equity; in other words, there’s a greater likelihood owners of debt will actually get a return (get earnings on the investment). There are several reasons for this, which we won’t explore right now. But on the other side of the coin, equity investors generally get higher returns (more earnings than debt investors), because they’re taking a greater risk.

Literally billions of words have been spent arguing how to invest money, and specifically, the merits of debt vs equity. In the end, it usually comes down to two key issues. First, your appetite for risk. If you have a low threshold, you should probably stick with debt (buying bonds or something similar); on the other hand, if you welcome a bit of risk, then equities might suit you better. Second, your age. If you’re close to retirement, you can’t afford to take many chances, so you would mostly invest in debt. On the other hand, if you’re relatively young, and you have lots of years to recover from plunges in the stock market, then you would invest in equities.

In the end, there is no best way to invest money, just one that’s best for you. But, you will be off to a good start if you begin your quest of where to invest money with a look at the advantages and disadvantages of debt and equity.

Whichever you choose, you will always be better off with either of them than by consuming the money right now, whether that’s a new car, exotic vacations, or any of life’s other immediate pleasures.

Finally, thanks for a great and timely question!