Cash is King. When the bills come rolling in they must be paid in cash. Investments that can’t be turned into cash when you need to are a trap.
We have all seen how stock markets can and do plunge in value from time to time. This often coincides with recessions when people can lose their jobs and need the money to cover expenses. Even the lowest-risk investment – TIPS – can fall in value during a financial crisis.
But some investments are so illiquid that they are like roach motels – you can get in but you can’t get out. Be aware to avoid these traps.
The Investing Boom That’s Squeezing Some People Dry
Bundles of real estate and other private assets are easy to buy and hard to sell. Make sure you know how you’ll get out before you get in.
By Jason Zweig, The Wall Street Journal, June 7, 2024
If your financial advisers haven’t yet tried to sell you any “alternative” investments, they might soon. Flogging these assets that aren’t listed on a stock exchange—bundles of real estate, buyout deals, private debt and so on—is one of Wall Street’s biggest obsessions.
Getting in is easier than ever. But I doubt most buyers understand how hard getting out can be.
Just three categories of alternatives—nontraded real-estate investment trusts and business development companies, plus interval funds that permit you to withdraw a portion of your money only a few times a year—raised a combined $55.8 billion in 2023…
An investment that doesn’t trade may have some advantages, but once you buy it, how do you sell it? How deep a haircut, or discount from the reported price, will you take?.. [end quote]
The rest of the article is a description of many problems of these illiquid investments. The article ends with, “Before you get in, ask your adviser to explain exactly how you’ll be able to get out.”
Nope! The right end should be, “If an advisor tells you to invest in one of these, dump the advisor and put your money into investments with huge, active markets so the investment is liquid.”
Don’t walk into a roach motel.
Wendy