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What is a Digested Security?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 19 April 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Digested securities are investments that are secured by investors with the intention of holding on to the options for a significant amount of time. Usually, the idea behind the digested security is that the investor will ultimately earn a greater amount of return by keeping the investment rather than trading a succession of different options. This may be the case even if the immediate performance of the security is not projected to include an increase in worth.

It is not unusual for many investors to have at least one digested security in the portfolio. Long range investments of this type help to provide a foundation for the financial profile of the investor, effectively establishing a solid financial base. From this perspective, the digested security makes it possible for the investor to engage in speculation of other securities. No matter how much the appearance of the portfolio may change, the digested security is still there.

Selecting the right investment to function as a digested security requires careful consideration of several factors. The current stability of the option is key, as it provides a reason to consider the option in the first place. At the same time, the investor will look at the performance of the option over the last several years.

If the history indicates that the option is stable over the long term, that can prompt the investor to project future performance, given a few variables in economic and political factors. After weighing the results of the projections, the investor can then make an informed decision about purchasing the investment and holding onto it for the long term.

The choice of an investment as a digested security does not necessarily mean that the investor anticipates an immediate return from the option. Often, the selection may currently be available for very little in the way of investment. However, the investor has a solid reason to think that in the years to come, the option will enter into a period where the value will yield significant results. In the interim, the investor will sit on the investment, possibly earning a small return along the way, waiting for the day when the investment truly pays off.

In some cases, the digested security is a well-known option that has proven to hold up well in just about any economic condition and still manage to generate a steady flow of return. This type of security is often a favorite choice of investors that tend to be conservative with their portfolios. In this scenario, the idea is not patiently waiting for a sizable return at some future time; rather, it is a reliable source of revenue that can be used for any purpose the investor has in mind, including making other investments.

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