What is a Legacy Security?

Legacy securities are a form of legacy assets. Securities of this type are usually considered to be somewhat lackluster in performance, possibly bordering on becoming a liability rather than an asset. While the security may have a long history, there is some evidence that the entity issuing the security is close to becoming obsolete, a factor that could render the security worthless. Many investors identify an investment as a legacy security when it has demonstrated a steady rate of decline over an extended period of time, and does not show any promise of regaining any upward momentum.

A legacy security comes in many different forms. Investments like real estate-related securities, including commercial building projects and related bond issues, are one example. Any type of public-private investment funds may also become outdated or obsolete over time, effectively making them into legacy securities. Any type of stock or bond has the possibility of becoming a legacy security, given the right set of circumstances.

Most stock options go through periods of upward and downward movement, but never reach the point of being identified as a legacy security. That type of designation is usually not applied until the security in question has undergone a prolonged period of downturn, with no short bursts of leveling off or increasing in value along the way. As it becomes clear that the security is not likely to recover any time soon, investors often choose to attempt to sell off their shares before the value of the legacy security falls to the point of losing money. Unfortunately, the demand for those shares may be slight, leaving the investor with no option other than to retain control and absorb the loss.

While a legacy security is usually considered an undesirable asset, there are some investors who pay close attention to any investment option that is considered to be a legacy asset. This is particularly true if the investor believes that the goods or services offered by the business that issues the stock could be promoted to a different niche market of consumers, and cause the downward slide to reverse. When this is the case, the savvy investor may actually take steps to acquire as many shares of the stock as possible before others begin to see the potential for the resurgence and consequent increase in the value of each share of stock. Assuming that there is a real possibility of cultivating this alternative consumer base and restoring the issuing company to profitability, it is possible to make a great deal of money from purchasing any securities branded as legacy options.