What are illiquid assets?

Illiquid assets refer to those that cannot be quickly converted into cash without a significant discount in their selling price. This is primarily because these assets may not have a ready market, or their sale may require more time and effort due to factors like lack of demand, unique characteristics, or regulatory hurdles.

For example, real estate properties, collectibles, or shares in a private company are often classified as illiquid because finding a buyer willing to pay the fair market value can take time. The need to lower the asset's selling price to attract buyers quickly exemplifies the significant price concession associated with liquidating these assets.

This concept is essential in finance and investment decision-making, as it impacts how investors assess their portfolios and manage their cash flows. Understanding illiquidity helps in evaluating the risk and return profile of different investments.