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Asset-backed Security (ABS)
Term category: General Investing
In 10 words or less: A debt security that is backed by an asset, such as receivables.

Definition: Asset-backed securities are debt securities that are backed by assets other than real estate.  This includes receivables, loans, leases, royalties, etc.

Advice: ABS's are great because they offer an alternative to investing in just typical corporate debt.  However, when evaluating investments, it's important to remember that the bond is only as good as the assets that are underlying it.  For example, if the company isn't very good collecting on its receivables and they're what's backing the bond, you may lose money.

 

 

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