illiquidity
In simple terms, illiquidity means that something cannot be easily converted into cash without losing significant value. When an asset is illiquid, it might take time to sell it, or you might have to accept a lower price than expected.
Examples of Illiquid Assets:
Real Estate: If you own a house and want to sell it quickly, it could take months to find a buyer. Even then, you might have to lower the price to make a fast sale.
Private Equity: If you invest in a private company (one that isn’t traded on the stock market), it can take years before you can sell your stake. You might have to wait for the company to go public or be bought by another firm.
Art and Collectibles: Valuable paintings, vintage cars, or rare coins may fetch high prices, but finding a buyer could take time, making them illiquid.
Contrast with Liquid Assets:
A liquid asset, like cash or stocks traded on a public exchange, can be easily and quickly sold at its market value. For instance, if you own shares of Apple stock, you can usually sell them instantly at a fair market price.
Illiquid assets offer the potential for higher returns because of their risk and difficulty in converting to cash, but they come with the tradeoff of not being easily accessible when needed