When people think about investing, stocks, bonds, or mutual funds likely come to mindassets easily traded for cash on open markets. But not all investments work that way. Non-marketable securities represent a different category of investments that cant be quickly converted to cash because they dont have a secondary market. These illiquid assets may not promise rapid returns, but they offer stability and are often used for long-term financial goals.

In this article, well explore the basics of non-marketable securities, look at some examples, and contrast them with marketable securities to show where they fit into the financial landscape.

What Are Non-Marketable Securities?

Non-marketable securities refer to financial instruments that lack a public trading platform. Unlike marketable securitiessuch as stocks or bondsthat can be bought and sold on exchanges, these securities are restricted in how or when they can be traded. This lack of liquidity can present challenges for investors who need immediate access to cash.

One of the core features of non-marketable securities is that they usually come with predefined maturity dates or conditions under which the holder can redeem them. In some cases, these investments are designed specifically to serve particular financial purposes, such as savings bonds for government programs or certificates of deposit for secure savings.

For the investor, non-marketable securities are about reliability rather than rapid profits. They are often considered low-risk investments, offering steady, if modest, returns over the long term.

Examples of Non-Marketable Securities

Understanding non-marketable securities is easier with real-world examples. Lets look at a few common types:

Savings Bonds: Savings bonds are issued by governments to help finance public projects. They provide a fixed interest return over time but cannot be sold to other investors. Bondholders can only redeem them directly with the government after a specified period. For example, U.S. Series EE savings bonds accrue interest over 20 to 30 years, ensuring a guaranteed value at maturity.

Certificates of Deposit (CDs): Banks issue certificates of deposit with fixed interest rates, requiring depositors to lock in their money for a set period, such as six months or five years. CDs penalize early withdrawals, which discourages liquidity. This feature makes them an excellent choice for those looking to grow savings safely without frequent access to funds.

Private Company Shares: Shares in privately held companies are another example. Since these companies arent publicly listed, investors cant easily trade their shares. Liquidity is typically realized only when the company is acquired, merges with another business, or goes public via an initial public offering (IPO).

Restricted Securities: These are stocks or bonds issued with conditions that limit their sale. Often given to employees or insiders of a company, they may carry lock-up periods, during which they cannot be sold. Even after the lock-up expires, finding buyers in the absence of a public exchange can be difficult.

These examples demonstrate that non-marketable securities often serve niche roles within portfolios. Their primary value lies in their stability and low risk, even though investors must accept limited flexibility.

Non-Marketable vs. Marketable Securities

The most significant difference between non-marketable and marketable securities is how easily they can be traded. Marketable securities, such as stocks and mutual funds, are highly liquid because they are listed on exchanges and can be quickly bought or sold. Investors benefit from this flexibility, especially in volatile markets, where they can adjust their positions at will.

Non-marketable securities, however, are harder to value and sell. Since they dont have an active secondary market, their pricing is often set through agreements with issuers or based on maturity schedules. As a result, holders of these assets may have to wait until specific conditions are met to unlock their value.

Another key difference is in the risk-reward profile. Marketable securities are susceptible to price fluctuations because they respond to market forces. While this volatility creates opportunities for capital gains, it also introduces the risk of significant losses. Non-marketable securities, by contrast, provide more stable, predictable returns but rarely offer high growth potential.

For example, stocks might experience sharp increases or declines within days, while savings bonds accumulate interest steadily over decades without dramatic shifts. Investors who value peace of mind may prefer non-marketable assets, even if they miss out on the growth opportunities that come with marketable securities.

When Should You Consider Non-Marketable Securities?

Deciding whether to invest in non-marketable securities depends on your financial goals and liquidity needs. These assets can be suitable if you:

Need to Secure Long-Term Savings: Products like savings bonds and CDs provide reliable, low-risk returns for people looking to grow their money steadily over time.

Have A Low Appetite For Market Volatility: Non-marketable securities remain unaffected by daily market fluctuations, making them ideal for conservative investors.

Dont Need Immediate Liquidity: If you have other liquid investments or savings, tying up a portion of your portfolio in non-marketable assets might make sense.

However, they may not be the right fit if you need frequent access to cash or want to take advantage of market trends. Investors seeking growth through capital gains will typically lean toward marketable securities, where active trading is possible.

Conclusion

Non-marketable securities may not offer the excitement of trading stocks or the potential for quick profits, but they play a crucial role in financial planning. These assets excel in providing stability, low risk, and predictable returns, making them valuable for investors with long-term goals. However, their lack of liquidity and growth potential means they aren't suitable for everyone.

Understanding how non-marketable securities compare to their marketable counterparts can help investors make better decisions about how to structure their portfolios. While marketable securities offer flexibility and opportunities for growth, non-marketable assets deliver peace of mind and steady income over time.