What Are the Advantages of Asset-Backed Securities?

Asset Allocation

When it comes to investment, there is often a myriad of options open to the average investor, which can certainly make it difficult for those inexperienced with global markets to choose the right one for them. Whether it’s bonds, stocks and shares, or even currencies, there are plenty of considerations which need to be made. Asset-backed securities (ABS) are one option which is worth exploring, so here are some of the advantages of investing in them.

What Are Asset-Backed Securities?

As the name would suggest, asset-backed securities are investible securities which are backed by a pool of underlying assets, allowing them to be sold through a process called securitisation. The underlying assets which make up asset backed securities can range from the interest on credit cards (such as those offered by companies like Ocean Finance) to revenues from the entertainment industry.

It is worth noting that, in this sense, there are different types of asset-backed securities, each with their own qualities, so investors should always look into the constitution of the asset-backed securities they are interested in and make their decisions accordingly.

Control the Risk

One of the most significant benefits of investing in asset backed securities is that the investor can control the risk levels which they are willing to take on. Through choosing the appropriate ABS, they can have a good idea of how much money they may receive (or lose) each month, based on the risk they take on.

This means that different investment agendas are catered for, and investors can add whichever types of asset-backed securities to their portfolio which they think will best serve their overall financial goals

No Reliance on Intermediaries

Another advantageous quality of asset-backed bonds is that investors do not have to rely on intermediaries (such as banks) to pay them, but rather they receive income from the underlying assets themselves (as opposed to being paid by the intermediary). This means that, should the issuer of any given ABS go under, the investor will not suffer any financial losses.

This makes them an exceptionally robust investment choice, and one which could well be very profitable in the long run.

Ultimately, asset-backed securities can be an effective addition to any investment portfolio, and are a great alternative to standard bonds. As such, they are well worth looking into for those investors who wish to control their overall investment risk and still have the chance to receive good returns.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
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