What is Belt and Suspenders?
Belt and suspenders is a term to describe a risk-averse person or situation. The term refers to the act of wearing redundant items to hold up a pair of pants.
How Does Belt and Suspenders Work?
For example, let's assume John Doe is purchasing a small dry cleaner from Jane Smith. He escrow account that is controlled by the bank and broker handling the transaction. The bank and broker are responsible for ensuring that all legal aspects of the deal occur properly before they can give the to Jane Smith and close the deal. This provides some surety to John Doe that the deal be done properly, that the business really exists, that Jane Smith is really the owner and that everything is as she says it is. In other words, the escrow account mitigates the risk that John Doe "get taken."the $2 million purchase price in an
However, if John Doe wants toa belt and suspenders on the deal, he might get some sort of transaction insurance on the deal.
Why Does Belt and Suspenders Matter?
High risk means the potential for high returns and high losses. Thus, investors who arelike to "take a belt-and-suspenders approach."