Evaluate the basic uses through an introduction to asset backed securities

Unlike other investments such as stocks, asset-backed securities require a better understanding of the process by which companies issue these investment vehicles. With stocks, a person understands that they are buying shares of a given company. However, with asset-back securities, the underlying security is debt from myriad entities.

I recommend: Examine the article "Asset Backed Securities: a practical guide for investors" for a better understanding of the basics of these investments. Investinginbonds.com also has a series of articles on asset-backed securities information and asset-backed securities basics.

Analyze asset-backed securities pricing and structure

The pricing of asset-backed securities is, like stocks, determined by the markets in which they trade. The credit rating service Moody's issues a credit rating on each asset backed security, and this rating helps determine the market value for the asset-backed security. The structure of these financial instruments are similar but can vary some with each company that issues them.

I recommend: Register with the Moody's to view the rating and pricing information on asset-backed securities. Examine this chart from ABSresearch.com to determine the basic structure of an asset-backed security.

Seek professional advice on asset-backed securities

Because these investment vehicles are relatively new, an investor must be diligent in his or her research before investing in asset-backed securities. After all, the underlying security is debt, and in a weak economy this debt can default, leaving an asset-backed security severely devalued.

I recommend: Consult a representative at Chicago Partners or Structured Finance Advisors, which offer asset-backed securities consulting services. Attend ABS securities classes from AFS Seminars to gain a better understanding of these investment vehicles.