Definition

Illiquidity Premium

The excess return investors earn for holding assets that cannot be easily converted to cash. Alternative investments — real estate, private equity, fine art, venture capital — offer illiquidity premiums over public market equivalents precisely because most investors cannot tolerate being locked up. The flip side: if you are forced to exit an illiquid position early (due to an unexpected cash need), you may have to accept a 70–80% loss on principal. CJ Follini identifies illiquidity as the #1 structural barrier keeping individual investors out of alternatives, and argues it is fundamentally a planning and budgeting problem — not an investment knowledge problem.

From the episode “Millennials Will Inherit Trillions”

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Millennials Will Inherit Trillions

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