Quick Overview
We have categorized which investment has the least liquidity:
Introduction
When it comes to investments, there are a lot of factors that you need to consider in order to make the best decision for your financial future. One factor is liquidity! Which investment has the least liquidity? In other words, which investment is the most difficult to turn into cash quickly? (It’s not so common and instead, people are searching for high liquidity investments.)
For most people, this is NOT a major consideration when making any investment decision. That’s because if you need to access your funds quickly, you don’t want them tied up in an investment that isn’t very liquid.
Low liquidity investing is a huge business and Real estate represents a very low-liquid investment in this market.
What are liquid assets?
Liquid assets examples are cash, stocks, exchange-traded funds (ETFs) and treasury bills. These are all things that can be easily converted to cash if you need to access your money quickly.
What is low liquidity investing?
Low liquidity investing is a type of investment where the investor does not have immediate access to their money. This can be for a number of reasons, but typically it is because the investment being made is not very liquid. For example, if you were to invest in a piece of property, it would take some time to sell that property and get your money back out of the investment.
Why would someone invest in something with low liquidity?
There are a few reasons why someone might choose to make a low-liquidity investment. One reason is that they may believe the investment will go up in value over time, so they are willing to wait for it to become more liquid for example investing in a Startup Business. Other reasons are:
- If the investment turns out to be a good one then the profit could be higher because not many investors are preferring low-liquidity investments.
- Another reason is that they may not need access to the money right away, so low liquidity is not a concern.
- You can get a different price than the actual value because on high liquid assets the price will mirror the current market price since lot of trades are being made. On the other hand investments with the least liquidity are traded very infrequently and therefore it’s more probable to get a good deal!
What are the risks of low liquidity investing?
Of course, with any investment, there are always risks involved. One of the risks of low liquidity investing is that you may not be able to access your money right away if you need it. This can be a problem if you have an emergency and need cash quickly:
- Another risk is that the value of the investment may go down before it becomes more liquid. This means you could lose money on the investment if you need to sell it quickly.
Which Investment Has The Least Liquidity (11 examples)
The list of all 11 investments with the least liquidity:
- Certificate of deposit and Money market accounts
- Real estate and real Estate Investment Trusts (REITs)
- Peer-to-Peer Lending
- Crowdfunding
- Bonds (Government and Corporate)
- Treasury Inflation-Protected Securities (TIPS)
- Private equity and Venture capital
- Hedge funds
- Commodities (Gold, Oil etc.)
- Collectibles (luxury watches)
- Credit unions and Insurance company investments
Certificate of deposit and money market accounts
CD’s and money market accounts are both great options for low-risk investments. This is because they are backed by the government, so you know that your money is safe. Plus, they tend to have higher interest rates than savings accounts, which means you can earn more on your investment over time.
Certificate of deposits
Unlike savings accounts, CDs require that the money remain untouched over the full term to avoid penalties and lost interest. Savings accounts often provide lower interest rates than CDs as compensation for liquidity loss.
Money market account
A money market account is a type of savings account that usually has a higher interest rate than a regular savings account.
This is because the bank can use your money to invest in short-term debt, which tends to be less risky than other investments.
How to create a money market account?
It’s easy to create a money market account- simply visit your local bank or credit union and ask about opening one. You’ll likely need to deposit a certain amount of money to get started, but once you do you can start earning interest on your investment.
Check out here for more online banks which are supporting money market funds. (up to 2 %APY)
Real estate
If you’re looking for a low-risk investment that can give you the potential for high returns, then investing in real estate is a great option. While there are always risks involved with any type of investment, investing in real estate is one of the more stable options out there. Plus, you can use leverage to purchase property, which means you can get started with a smaller investment than you would need for other types of investments.
Real Estate Investment Trusts (REITs)
Real estate investment trusts are companies that own and operate income-producing real estate. REITs can be a good way to invest in real estate without having to actually purchase a property. These investments typically offer high dividends, which can provide you with regular income because REITs are required to distribute at least 90% of their taxable income to shareholders, they offer the potential for high returns.
- Non-traded REITs are illiquid investments. They generally cannot be sold readily on the open market but usually give a higher return. (Rendity gives you up to 8% p.a.)
- High liquidy can be found on REITs traded on brokers. (eToro offers to buy ETF REITs)
Peer-to-Peer Lending
Peer-to-peer lending is a form of debt financing that allows individuals to borrow and lend money without the use of an institutional bank. Peer-to-peer lending platforms like LendingClub, Prosper and Mintos connect borrowers with investors who are willing to fund their loans:
- These platforms vet potential borrowers and offer loans at lower interest rates than traditional banks. In return, investors earn regular payments of interest and principal, which can generate higher returns than more traditional fixed-income investments.
Crowdfunding
Crowdfunding is a way of raising capital for a business or venture by pooling money from a large number of people. Unlike traditional investing, which involves putting money into a company or project that has already been vetted by professional investors, crowdfunding allows anyone to invest in early-stage companies and ventures. While there are some risks involved with this type (it’s not a low risk investment), it can also lead to high returns if you choose the right projects to invest in.
Popular platforms are Indiegogo or Kickstarter.
Bonds (Government or Corporation)
Bonds are debt securities that are issued by corporations and governments to raise capital. When you buy a bond, you are lending money to the issuer in exchange for interest payments. Bonds typically offer fixed interest rates, which means you know exactly how much income you will receive from your investment:
- While bonds are not as risky as stocks, they do come with the risk of an investment with the least liquidity! BUT on the other and they are generally a low-risk investment due to the good credit score of the country or the big company.
Government bonds
Government bonds are debt securities that are issued by the government in order to raise money for various projects. Government bonds typically offer low risk and low returns, but they can be a good option for those looking for a safe investment.
Corporate bonds
Corporate bonds are debt securities that are issued by corporations in order to raise money for various projects. Corporate bonds typically offer higher risk and higher returns than government bonds, which makes them a good option for those looking for a more aggressive investment.
Treasury Inflation-Protected Securities (TIPS)
Treasury inflation-protected securities are bonds that are offered by the U.S. government. These bonds provide a guaranteed rate of return, plus they protect your investment from inflation. That means your investment will be worth more in the future, even if inflation rates rise. While TIPS are considered to be a low-risk investment, they do offer the potential for higher returns than other types of bonds.
Private Equity
Private equity is a type of investment that involves putting money into a company that is not publicly traded. Private equity firms typically invest in companies that are going through a period of growth or transition, such as a merger or acquisition.
Venture capital
Venture capital is a type of private equity that is invested in early-stage companies. Venture capitalists provide funding to startups in exchange for an ownership stake in the company. While this type of investing does come with some risk, it can also lead to high returns if the company is successful.
Hedge funds
Hedge funds are investment vehicles that pool money from investors and use it to trade a variety of assets. Hedge funds typically use leverage and short-selling to generate returns, which can be high but which also come with the risk of losses.
Commodities
Physical commodities are natural resources that are used in the production of goods and services. They include things like oil, gas, gold, and silver and have the least liquidity.
You can invest in high liquid investments of commodities by trading ETFs, mutual funds, options, futures or stocks which are engaging with this commodity. (this is possible with DeGiro)
Gold
Gold is a precious metal that has been used as a form of currency, jewelry, and investment for centuries. Gold is considered to be a safe haven asset, which means it can provide protection from economic uncertainty. While the price of gold can be volatile, it typically holds its value during periods of inflation.
Oil
Oil as an investment is typically done through oil futures, which are contracts that allow you to buy or sell oil at a future date. These contracts are traded on commodities exchanges, and those have high liquidity. On the other hand, the actual physical barrels of oil is not very liquid.
Collectibles
Collectibles are items that are considered to be valuable because of their rarity or historical importance. Examples of collectibles include art, coins, pokemon cards and stamps. While collectibles can be a good investment, they are also illiquid, which means they can be difficult to sell.
Luxury watches
Luxury watches are a type of collectible that has been gaining in popularity in recent years. These watches are typically made by high-end brands and can be quite expensive. Here are plenty of great watches available for under $3,000. In fact, some of the best watches in the world are available at this price point.
Credit unions
Credit unions are financial institutions that are owned and operated by their members. Credit unions typically offer higher interest rates on deposits and lower loan rates than banks. While credit unions are a good option for those looking for a safe place to invest their money, they can be less liquid than other options, which means it may take longer to access your money.
Insurance company investments
Some insurance companies offer investment products, such as annuities and life insurance policies, that can be a good option for those looking for a safe and low-risk investment. These products have typically low liquidity, which means it can be difficult to access your money.
Fixed annuity
Another great option for a low-risk investment is a fixed annuity. This is a type of insurance product that can provide you with a guaranteed income stream for life. That means no matter what happens in the market, you will always have money coming in each month. Plus, most fixed annuities offer tax-deferred growth, which means you won’t have to pay taxes on your investment until you start withdrawing the money.
Conclusion
To sum it up, it can be said that there are numerous investments with the least liquidity:
- Each one comes with its own benefits and risks.
- Most offer higher profits when the investment was chosen wisely but in all cases, you must be patient.
- In the short run, you will always lose money or you cannot cash it out.
More investment knowledge
Do you want more? You are in the right place, check here for more knowledge that levels you up as an investor:
- Curious about crypto? Then start listening to one of the best crypto podcasts in 2022.
- Secret tip: Did you wonder how to delete a crypto com account for FREE? (normally you need to pay)
- Stocks or luxury watches? Continue here.
The article includes the personal opinion of the author. It should not be considered Financial or Legal Advice. All data and numbers have been sourced the 2022–09–19. Changes may apply.
About the author
Patrick Gruber is homeless because
he made his dream of being a digital nomad real.
He started as a developer, ventured into Amazon FBA business, invested in the market, founded a Cardano Stake Pool, and started his blog in 2022.
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