Securities are investments that allow you to own things without physically holding onto them. Examples are stock or bonds where you have a certificate or some other electronic or physical document to represent your ownership.
Marketable Securities are investments or debts that can be easily bought and sold in a public market. Examples are stocks, bonds, mutual funds, and certificate of deposits.
Non-marketable Securities are investments or debts that can be difficult to buy and sell. Examples are government bonds and private company shares.
Marketable = things that can be sold.
Non-Marketable = things that cannot easily be sold.
To build a healthy portfolio, it is important to have a mix of both types of investments.
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Marketable investments include:
- Mutual Funds
- Certificates of deposit (CDs)
- and more complex financial instruments such as: derivatives, mortgage-backed investments, commodities, and unit investment trusts (UITs).
These investments are very liquid because you can sell them for cash within hours. This differs from assets like a home or car that take much longer to sell and are illiquid.
Equity securities provide partial ownership in an investment (stocks, mutual funds)
Debt securities represent an obligation for repayment (bonds, CDs)
Debt vs Equity Securities
|Items||Equity Securities||Debt Securities|
|Examples||Stocks, Mutual Funds, Stock Index Funds||Bonds, CDs, T-Bills|
|Stability||Less stable||More stable|
|Liquidity||Liquid||Liquid, depending on terms|
|Maturity Term||Not relevant. Immediate to long term.||Fixed term, often within one year|
Non-marketable investments include:
- U.S. Savings Bonds
- State and local government series securities
- Private shares
- Savings accounts
- Money Market Deposit Accounts (MMDA’s)
- Fixed Deposit Accounts and Fixed-term investments
Non-Marketable Investments are difficult to buy or sell because they do not trade on a traditional market and are sometimes non-transferable. Since they are not easy to sell, they are not liquid.
For this reason, they are often issued at a discount.
Some marketable investments, such as certain government bonds or “munis” (municipal bonds), may have tax-free treatment. Others, including some preferred stocks, may have reduced tax rates. Always consider tax impact when making investment decisions.
Why invest in marketable investments?
“How many millionaires do you know who have become wealthy by investing in savings accounts? I rest my case.”
– Robert G. Allen
Why invest in non-marketable?
Non-marketable investments make great gifts since they can easily be purchased for others. They are also less risky than marketable investments.