We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What are Illiquid Assets?

Mary McMahon
By
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Illiquid assets are assets which cannot be readily converted into cash, in contrast with liquid assets, assets which are either in the form of cash, or easily convertible into cash. People often try to avoid maintaining a large balance of illiquid assets in their portfolios, as these assets can become serious liabilities, especially if the market becomes unstable. Some examples of illiquid assets include: real estate, huge blocks of stock, antiques, and collectibles.

There are a number of reasons why an asset can become illiquid. One common reason is uncertainty about the value of an asset, which can be caused by general financial instability, or issues specific to the asset. For example, in a period of declining property values, a home is an illiquid asset, because the value is unclear, and this can make buyers reluctant. Likewise, stocks can become illiquid if the company is reorganizing or changing hands, as the value of the stocks will be impacted by the changes in the company, but no one knows whether the value will go up or down. Likewise, the sale of a huge block of stock can cause a change in values, making such sales difficult to handle.

Another reason for assets to become illiquid is because they are rarely or infrequently traded. Things like works of art and antiques are often illiquid because they are unique, and it can be difficult to find a market for these items, and to determine what the fair value of such items might be. A Picasso painting, for example, is tough to value because it's the only example of that painting in the world, and qualified buyers for unique and high-value works of art can be tough to find.

The advantage of an illiquid asset, for someone who is willing to sit on it, is that it can sometimes achieve a very high value. Homes, for example, have values which can fluctuate wildly, but if people hang on in a period of falling values instead of selling in a panic, they may be able to net a profit in the future when home values recover. Likewise, the value of an original Bruegel painting is not going to decline in the long run, even if the painting is difficult to sell and the values fluctuate in the short term.

The clear disadvantage to these types of assets is that when someone needs money in a hurry, illiquid assets are not up to the task. Someone might sell such assets at a steep discount in desperation if no other ways to raise funds are available, or someone might struggle to sell illiquid assets in time to meet other obligations or take advantage of an opportunity. This issue is an excellent illustration of why it is extremely important to diversify investments and holdings for maximum flexibility and profit potential.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a SmartCapitalMind researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
By anon978607 — On Nov 19, 2014

I agree on homes with @Melonlity. I too am sick and tired of the manipulation that real estate, especially houses, are a buy no matter what and that they are liquid, which they are not ever, especially when overpriced and overvalued.

When interest rates rise, property is better able to sell at the higher rate of interest at a profit or the owner loses money. It is that simple.

Fine art and antiques of high quality, on the other hand, rarely go down in value due to rarity.

Stocks are a sucker game, in my opinion. I was told long ago play the stock market with money you could lose on the street and not care about.

By anon956369 — On Jun 13, 2014

We recently hosted a conference dealing with how to handle illiquid assets. Highlights can be seen online. Look up "IFA Industry Leader Insights."

By donasmrs — On Jan 30, 2014

An illiquid asset isn't necessary an asset that cannot be sold quickly. It may be an asset that can't be sold quickly without the seller reduce the price to some extent.

Aside from cash and gold, practically any other asset can become illiquid depending on how the market is doing at the same time. Cash and gold are the least risky investments, as the need for it never goes down and it can be sold very quickly without a decrease in price.

For some reason, investment in gold in the US isn't as high as it is in other parts of the world.

By stoneMason — On Jan 29, 2014

@Melonlity-- Well, I don't agree with you. Real estate is a great investment. But like the article said, the owner needs to wait through tough times so that money is not lost.

I know many people who buy and sell homes, as well as rent them as a form of investment. Some people even live off of rent. For example, rent in the suburban areas of the East Coast is very high. Someone who owns several properties there can live off of rent as their income.

So real estate is definitely an asset, jut an illiquid one. Obviously it's not as reliable as asset capital, or cash. So people who own homes, need to analyze the market and home prices carefully and wait until prices go up before selling them.

By turquoise — On Jan 29, 2014

I guess for an investor, it's a good idea to keep some illiquid assets, as well as liquid assets. That way, the investor can make money off of the illiquid assets in the future. But he should also have liquid assets on hand for emergencies so that he doesn't have to sell any illiquid ones.

By Melonlity — On Jan 25, 2014

Good point about homes. I'm sick to death of people viewing those as liquid assets and have heard a lot of people refer to their homes as part of a retirement plan. Frankly, people should stop obsessing about home values -- that's a place to live and not a cash register. Pulling the value out of a home can take some time, too. Even if you want to sell one in a good market, it takes a while to get your cash.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.