Non-Security
Candlefocus EditorNon-securities can be thought of as investments in tangible assets, and as such, many investors find them attractive for the potential for long-term growth and return. They may be more volatile than traditional stocks and bonds, and may require considerable research in order to make a safe, informed decision. Unlike traditional investments that must be registered with the US Securities and Exchange Commission (SEC), non-securities do not need to adhere to the same level of public disclosure and reporting, meaning they may carry a certain amount of risk.
Investors may purchase portions of non-security investments, and they may also purchase them in the form of loans or shares. An example of a non-security loan is an art collecting loan, in which an investor purchases a share in an art collection, which is held in a trust. The loan agreement would outline the terms of the loan, such as interest rates, collateral and other important factors.
In addition to traditional non-security investments, there are also certain publicly traded securities that contain a component of a non-security investment, such as an exchange-traded fund (ETF). ETFs are investments that track an index, such as the S&P 500, for instance, and may include a component of non-securities, such as diamond futures. ETFs, like other securities, are registered with the SEC and are subject to certain disclosure requirements.
Non-security investments can add diversity to an investor’s portfolio, allowing them to spread their risk across multiple investments. Given their diversity, they may also provide investors with an opportunity to diversify their portfolios on a budget, bypassing the high cost associated with traditional investments.
While non-security investments tend to retain their value better, they also come with certain risks, including the risk of fraud. For example, diamonds that may seem legitimate could have been stolen, conflict diamonds or counterfeit stones. Art, meanwhile, can notoriously be difficult to value. Additionally, some non-security investments may be subject to legal restrictions, such as those imposed on the transfer of diamond certificates. As such, it is important for investors to do their due diligence before investing in non-securities to ensure that their investments are safe and sound.