A non-security is a type of investment that is not institutionalized for broad market trading access through a trading exchange. These assets are not freely marketable or transferable as a security.
Breaking Down Non-Security
Non-security assets do not follow an institutionalized process for public trading on exchanges. This makes them highly illiquid investments. They contrast to securities such as stocks, mutual funds, and bonds.
Non-securities have values that are defined by different mechanisms than exchange-traded securities. Market experts typically appraise Their valuations. In some cases, non-securities may require authentication and registration to support their use and potential sale. These assets, however, do not require the backing of an underwriter or bank and involve much less documentation and paperwork.
Non-security assets can be bought and sold through alternative transactions that can range from auctions to private market listings. Non-securities include assets such as art, rare coins, life insurance, physical gold, and diamonds.
Non-securities are typically known as real assets. While they do not trade institutionally on public market exchanges, they may still be components of investment offerings and can be included in investment portfolios.
High net worth investors may have comprehensive portfolios that include highly valued assets such as paintings, precious metals, and real estate. Investors may also find some funds that manage portfolios of real assets such as gold. The SPDR Gold Shares ETF provides one example. The portfolio is fully invested in gold bullion. This exchange-traded fund (ETF) is a unique offering that invests in gold to help lower the barriers for investors who wish to hold gold real assets in their portfolio.
Personal Financial Assets
Personal financial assets may also be considered a non-security. These holdings can include assets such as life insurance and annuities.
Investors have the option to invest in these non-security assets through an insurance company. Life insurance and annuities are two types of non-security assets that are not publicly traded but rather contractual agreements made with a sponsoring company. Life insurance and annuities will require steady premium payments that help to build out a portfolio that offers some payout in the future. Life insurance plans can be used to provide for dependents following the death of a family member. Annuity plans may also offer provisions for life insurance. However, they are often used as vehicles for retirement savings with consistent annuity payouts scheduled to follow a targeted payout date.