Marketable securities are financial instruments that can easily and quickly be converted into cash at a reasonable price. These securities are typically traded on public markets and include instruments like stocks, bonds, and Treasury bills. Their liquidity and ease of transfer make them highly desirable for both individual and institutional investors.
In contrast, non-marketable securities are financial instruments that cannot be easily sold or transferred. They are often closely-held, meaning there is no public market for these securities. Common examples of non-marketable securities include savings bonds, private company shares, and certain types of certificates of deposit (CDs). These securities are typically bought with the intention of holding them until maturity or for an extended period.
Marketable Securities
- Liquidity: Marketable securities can be quickly converted into cash. They are traded on public exchanges, providing high liquidity.
- Transferability: These securities are easily transferable between parties.
- Examples: Common stocks, corporate bonds, Treasury bills, mutual funds.
- Valuation: Market prices are readily available, ensuring transparency and real-time valuation.
- Risk and Return: Generally, marketable securities have varying risk and return profiles depending on the type (e.g., stocks vs. bonds).
Non-Marketable Securities
- Liquidity: Non-marketable securities cannot be easily sold or converted into cash.
- Transferability: Difficult to transfer ownership; often requires special documentation or approval.
- Examples: U.S. savings bonds, private company shares, certain government or corporate bonds.
- Valuation: Market values are not readily available, making valuation more complex and less transparent.
- Risk and Return: Usually deemed safer and more stable, albeit with lower returns due to limited liquidity and transferability.
Applicability
Understanding the difference between these types of securities is essential for portfolio management, financial planning, and investment analysis. Marketable securities are suitable for investors needing liquidity and flexibility, while non-marketable securities may appeal to those seeking long-term, stable returns.
- Liquidity: The ability to quickly convert an asset into cash.
- Transferability: The ease with which ownership of a security can be transferred from one party to another.
- Maturity: The date on which a debt instrument is due for repayment.
FAQs
What are examples of marketable securities?
Examples include common stocks, corporate bonds, mutual funds, and Treasury bills.
Why are some securities non-marketable?
Non-marketable securities are often issued by entities that do not wish to have a public market or are designed for a specific purpose, such as government savings bonds intended to encourage long-term holding.
How can I purchase non-marketable securities?
Non-marketable securities, such as savings bonds, can typically be purchased directly from the issuing entity, like a government agency or private corporation, usually with specific terms and purchase agreements.