Friday, September 23, 2016

Risk Evaluation Part 1: Secured vs Unsecured

-- If you can cover the downside and let the upside take care of itself, wealth creation is easy....George Antone

When evaluating an investment opportunity, there are many characteristics that one can use to evaluate risk.     A savvy investor needs to understand the quote above from a very wise mentor when evaluating investments.     Reward is easy to measure.  It's typically stated or promoted quite a bit.  

Most novice investors focus on the reward alone, and with rose colored glasses ignore the downside risk of a particular investment.    This is a very immature approach to investing. 

There are several characteristics to consider when evaluating an investment.   One of those is to evaluate whether the investment is secured or unsecured.    A secured investment is when there is a lien on some underlying collateral.  This makes recouping your investment much easier.   

An unsecured investment means there is no underlying collateral to protect your investment, and you'll have to sue in order to collect.  This obviously causes delay and additional expense. The better and more valuable the collateral the safer your investment.

Many people ask me if investing the stock market is unsecured or secured.  That's a good question, and the answer is, the investment is secured.  It's just secured to a volatile asset.  

So ask yourself, would you prefer a secured investment or unsecured investment?   It's up to you, there's no wrong answer.

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