Definition
Non-marketable securities are investments that cannot be easily bought or sold on the open market due to their lack of demand, regulations, or the terms of their contracts. These securities often include savings bonds, government bonds, or certain private company stocks. Usually, these securities are longer term and tend to offer lower returns due to their lack of liquidity.
Key Takeaways
- Non-Marketable Securities are those investment assets that are not readily available or easy to sell in the public market because they are typically traded over-the-counter or are held to maturity.
- They include savings bonds, treasury bills, and certain types of preferred or common stock. These securities offer a stable, but lower return on investment compared to marketable securities.
- Non-marketable securities are often government issued and are considered low-risk. Their value isn’t influenced by market fluctuations, providing a predictable income stream.
Importance
Non-Marketable securities are crucial in finance because they represent a category of investments that are not readily or easily traded or sold on the open market. This includes government savings bonds, local government investment pools, and other types of securities.
The importance of these securities lies in their stability and long-term profitability. Non-marketable securities are generally considered low-risk investments because they are often backed by the government.
Although they lack liquidity, their yield is typically higher compared to other securities. They are an important inclusion in a diversified investment portfolio to balance risk and reward, especially for conservative investors seeking safe, reliable returns.
Explanation
Non-Marketable Securities serve as a significant investment avenue, especially for government entities and corporations. Their main purpose is to provide the investor with a comparatively safer option with fixed income.
Since they cannot be traded in the open market due to the restrictions on their sale, this provides a layer of security for the investor, as the value of the investment is not generally subjected to massive market fluctuations. This makes Non-Marketable Securities a desirable choice for those who prioritize stability in their investment ventures.
These securities are predominantly used when the issuer, such as a government or corporation, requires funds for various internal operations or projects. For instance, savings bonds issued by the government are non-marketable and the money raised from these is used to fund budget deficits or infrastructure development projects.
The investor, on the other hand, receives a fixed income over a period of time. Despite not being able to sell-off the security in the open market, the guaranteed income serves as the main incentive for investors to opt for non-marketable securities.
Examples of Non-Marketable Securities
Savings Bonds: Considered one of the safest forms of investment, savings bonds issued by governments are a prime example of non-marketable securities. Investors buy them with the knowledge that they cannot be sold to another investor on the secondary market. This is why they’re considered non-transferable assets.
U.S. Series EE Bonds: The U.S. government issues these savings bonds to investors at a discount from their face value. This means that investors pay less than the bond’s full value, but receive the full amount upon maturity. These bonds cannot be sold on the open market and must be held until maturity or redeemed directly through the U.S. government.
Certain Retirement Accounts: Certain types of retirement accounts, like certain Individual Retirement Accounts (IRAs) or Roth IRAs, can also be classified as non-marketable securities. The shares in such accounts belong to the individual and cannot be sold or transferred to others in a traditional market. They can only be liquidated or accessed based on the retirement account rules, usually at a certain age, without penalties.
FAQ – Non-Marketable Securities
What are Non-Marketable Securities?
Non-Marketable Securities are financial securities that cannot be easily purchased or sold on the open market. These include investments such as government savings bonds, local government securities, and private investment vehicles.
What makes a Security Non-Marketable?
A security becomes Non-Marketable when it is not listed on a public exchange, meaning it cannot be freely traded in the marketplace. This is often due to regulations or restrictions imposed on the security.
What are examples of Non-Marketable Securities?
Examples of Non-Marketable Securities include U.S. Savings bonds, rural electrification certificates, private investments, and State and local government securities.
What are the risks associated with Non-Marketable Securities?
The risks associated with Non-Marketable Securities may include lack of liquidity, difficulty determining a fair market price, and potential for default. Since these securities cannot be easily sold, it can be hard to re-convert them into cash in a short period of time.
How are Non-Marketable Securities valued?
Non-Marketable Securities are often valued based on the income they generate rather than their sale price in the marketplace, as their value can’t be easily determined through regular market transactions.
Related Entrepreneurship Terms
- Treasury Securities
- Government Savings Bonds
- Non-transferable Securities
- Non-negotiable Securities
- Private Placements
Sources for More Information
- Investopedia: It provides comprehensive financial education content and a dictionary of financial terms. You can find a detailed explanation of Non-Marketable Securities on this site.
- Corporate Finance Institute: This site offers financial education and certifications for financial analysts. They have comprehensive resources including glossaries and guides.
- The Balance: The Balance provides financial advice and resources on a variety of topics. It covers personal finance, career development, investing, and small businesses.
- Forbes: Forbes has many financial articles written by experts in the field and it serves as a reliable source for finance terms and concepts.
