Marketable Securities
Updated on July 18, 2023
The term “marketable securities” refer to financial instruments or investments that can be easily bought or sold in the market, such as stocks, bonds, or mutual funds and can be converted into cash.
Types of marketable securites
Stocks – When individuals purchase shares of a company’s stock, they acquire partial ownership in the company. These stocks are classified as marketable securities as they can be traded on stock exchanges, enabling individuals to buy or sell them to other investors.
Bonds – Bonds are essentially loans provided to governments, municipalities, or corporations. They represent debt obligations that pay interest over a specific period. Bonds are considered marketable securities as they can be purchased or sold on bond markets, ensuring investors have access to liquidity.
Mutual Funds – Mutual funds pool money from multiple investors to create a diversified portfolio of stocks, bonds, or other securities. Shares of mutual funds are categorized as marketable securities since they can be bought or sold on the open market through the mutual fund company.
Exchange-Traded Funds (ETFs) – ETFs are investment funds that trade on stock exchanges similar to individual stocks. These funds typically track a specific index or asset class. ETF shares qualify as marketable securities as they can be easily bought or sold throughout the trading day, providing investors with liquidity.
Features of marketable securities
Liquidity – Marketable securities can be easily bought or sold in the market, providing quick access to cash.
Diversification – Investing in marketable securities allows individuals to spread their investments across different asset classes, reducing risk.
Potential for Returns – Marketable securities offer the opportunity to earn income through dividends, interest payments, or capital appreciation.
Professional Management – Certain marketable securities like mutual funds and ETFs are managed by professionals who make investment decisions on behalf of investors.
Transparency – Marketable securities are traded in public markets, ensuring transparency in pricing and access to information.
Flexibility – Investors can choose from a wide range of marketable securities to suit their investment goals and risk tolerance.
