Examples of illiquid investments: 8 ways cash gets stuck

Brian Nichols is the co-founder of Angel Squad, an angel investing community where aspiring and active angels learn from Hustle Fund’s approach, review curated deal flow, and connect with peers.

An investment can look valuable on a statement and still be unavailable for next month’s bills. The time between owning an asset and having spendable cash can disrupt your plans. These examples show where that process stalls, from startup shares and private funds to property and collectibles.

What makes an investment illiquid?

An illiquid investment is difficult to sell or convert into cash quickly without accepting a substantial price concession or cost. You may lack a buyer, face restrictions on selling, or need a lengthy process to complete the transaction. The U.S. Securities and Exchange Commission’s (SEC) liquidity definition connects sale speed with the effect on price.

Liquidity is a spectrum. Widely traded public shares usually have more ready buyers than a stake in a local business. Even a publicly traded investment can become difficult to sell when trading dries up or your position is large relative to demand.

A long holding period alone doesn't make an investment illiquid. You can choose to hold a liquid stock for decades. Illiquidity limits your ability to change that decision.

8 examples of illiquid investments

Some investments are difficult to sell because the underlying asset is unique. Others sit inside a fund or contract that limits your access to cash. The structure you own matters as much as the asset's name.

1. Private-company shares and startup investments

Shares in a startup or privately owned business usually have no public exchange where you can sell whenever you want. Securities laws and company agreements may restrict transfers, and willing buyers can be scarce. The SEC’s private-placement bulletin warns that investors may need to hold these securities indefinitely.

Imagine owning shares in a growing software company when you need money for a home purchase. The company can keep growing without buying back your shares, paying dividends, or finding you a buyer. Business progress doesn't create a withdrawal right.

The same access problem can apply when you invest through a special purpose vehicle (SPV), an entity that holds the startup investment. You own an interest in the vehicle, and its transfer and distribution terms also matter. Our guide to private-company investing explains how these ownership routes differ.

Our co-founder and general partner Elizabeth Yin wrote in Democratizing Knowledge (Hustle Fund, 2021), “Investing in risky/uncertain things (such as startups) is a total mindwarp.” Startup investing requires accepting both uncertain outcomes and limited control over when you can leave. Most bets may fail, and any one investment can become a total loss.

2. Venture fund interests

A venture fund pools investors’ capital to back startups. You own an interest in the fund rather than a personal brokerage account containing freely saleable startup shares.

A portfolio company raising another round doesn't mean the fund received cash. Even when the fund sells an investment, your distribution depends on its governing documents, expenses, reserves, and distribution provisions. Fund interests can also have transfer restrictions.

Some funds collect committed capital over time through capital calls, requests to contribute money you've already agreed to provide. The SEC’s Asset Management Advisory Committee describes these staged cash flows in its 2021 private-investments report. You can owe more cash while earlier contributions remain tied up.

3. Buyout and growth private-equity funds

Venture capital is part of the broader private-equity category. Buyout and growth funds often invest in more established companies, but that doesn't make your fund interest easy to sell.

A buyout fund might acquire a manufacturer, work on the business, and later seek a sale. A delayed buyer process can delay distributions to fund investors. You generally can't demand your share of the factory or instruct the manager to sell your portion of the company.

The SEC’s private-equity fund guidance describes investment horizons typically lasting 10 or more years and withdrawal limits defined by governing documents. That is context for the commitment, not a promised payout date. Specific fund terms and extensions vary.

4. Direct real estate and non-traded real-estate vehicles

A rental house, commercial building, or parcel of land takes a transaction to turn into cash. Marketing, negotiations, inspections, buyer financing, and closing can all add time. An owner who needs cash urgently may have to accept a lower offer.

Rent can provide income while the property itself remains illiquid. A monthly rent payment doesn't mean you can withdraw the equity in the building.

A real estate investment trust (REIT) owns real estate or related assets. Publicly traded REIT shares can usually be sold on an exchange. Non-traded REIT shares lack that exchange access, and their repurchase programs can have significant limits or be discontinued. The SEC’s REIT liquidity comparison explains the distinction.

Private real-estate funds add their own withdrawal and transfer terms. Owning real estate through a vehicle doesn't automatically solve the liquidity problem.

5. Collectibles, art, and rare physical assets

A painting, vintage watch, rare coin, or collectible car may need a specialized buyer. Authentication, condition, provenance, auction schedules, commissions, insurance, and transport can affect the sale process and what you keep.

For example, an appraisal of a rare watch is an estimate. A dealer's immediate cash offer may be lower, while an auction may require waiting and may fail to produce a sale.

Liquidity varies within the category. The Financial Industry Regulatory Authority (FINRA) and the Commodity Futures Trading Commission distinguish standardized bullion from collectible coin liquidity. A market for gold doesn't guarantee an equally ready market for a particular coin's collector premium.

6. Private loans and private-credit vehicles

A privately negotiated loan can generate interest while leaving the principal unavailable until repayment or a permitted sale. A borrower making payments doesn't create a ready buyer for the loan. A maturity date states when repayment is due; default or restructuring can still delay or reduce what arrives.

A private-credit fund adds another layer between the loan and your cash. For example, some business development companies (BDCs) invest in private credit. The SEC distinguishes non-publicly traded BDCs from exchange-traded versions because investors have fewer ways to sell their shares.

Income, repayment risk, and resale access are separate features. A distribution-paying investment can still be illiquid.

7. Interval funds

An interval fund offers to repurchase shares at specified intervals rather than allowing daily withdrawals. Those offers cover only a limited portion of outstanding shares.

If investors request more repurchases than the offer accommodates, you may only be able to sell part of your requested holding. The SEC’s interval-fund bulletin explains that a repurchase window doesn't guarantee you can sell every share you want.

A scheduled opportunity to request cash is different from guaranteed access to your entire balance.

8. Thinly traded public stocks and bonds

A public listing doesn't guarantee a deep market. A small-company stock or infrequently traded bond can have few buyers at the quoted price.

A displayed quote may cover a smaller position than you want to sell. Selling a large holding quickly can move the price, and the gap between buying and selling prices can be wide. FINRA’s market-liquidity guidance describes how trading volume, market stress, and order size affect this problem.

Bond maturity and liquidity are also different. A long-dated bond can trade actively, while another bond with a nearer maturity can be hard to sell.

Liquidity and solvency answer different questions

Liquidity concerns access to cash when obligations come due. Solvency, in the balance-sheet sense, means assets exceed liabilities. The Federal Reserve illustrates this cash-versus-capital distinction with both bank and household finances.

A household might own a property worth more than its mortgage and still lack cash for an urgent repair. Likewise, your stake in a financially healthy private business can remain hard to sell. Illiquidity alone doesn't mean the asset is worthless or the issuer is insolvent.

The problems can interact. A forced sale at a low price can turn a cash shortage into a permanent loss. And an investment you can sell easily can still lose most of its value. Liquidity provides flexibility; it doesn't provide safety.

A lockup ending doesn't put cash in your account

A lockup is a contractual restriction on selling or withdrawing for a period. Its expiration removes that particular restriction. Other contractual conditions, legal requirements, or a lack of buyers can still prevent a sale.

For a private-share secondary sale, three things must line up:

1. A permitted transfer. Applicable securities-law conditions and required company or vehicle approvals allow the transaction.
2. An agreed buyer and price. Someone is willing and eligible to buy the specific interest you're selling on acceptable terms.
3. A completed transaction. Documents, payment, ownership transfer, and any distribution steps finish before proceeds are usable.

The SEC’s private-secondary markets explainer describes conditional resale pathways. Legal permission to sell doesn't create a buyer. A platform listing, an expression of interest, or an expired holding period doesn't establish a completed sale either.

An acquisition or initial public offering can also leave investor-level restrictions or payout steps outstanding. Our guide to liquidity-event payouts follows that path from company event to investor cash.

An estimated value isn't an executable sale price

Private holdings may be valued using financing rounds, models, appraisals, or periodic manager estimates. An executable price is what a buyer will pay for your particular holding in a transaction that can close.

Those figures can differ because the estimate is older, market conditions changed, or your security has different rights from the one used as a comparison. Fees, taxes, and transaction costs can further reduce spendable proceeds.

Infrequent valuation updates can also make a statement look stable while the underlying economic risk changes. A smooth reported value doesn't establish low risk. Keep estimated wealth separate from cash available for commitments.

An illiquidity premium is uncertain compensation

An illiquidity premium is the extra expected return an investor seeks for giving up ready access to money. Expected compensation can fail to materialize.

A higher private-market return can reflect business risk, borrowing, manager skill, selection effects, or the period measured. Fees and the timing of contributions and distributions also affect the comparison. An observed difference doesn't establish how much came from illiquidity itself.

The SEC advisory committee's 2021 report found that private-market comparisons vary across asset classes and highlighted limits in performance measurement. It doesn't establish a universal premium that every illiquid investment pays.

We treat illiquidity as a constraint to budget for. Being unable to sell an overpriced or failing investment doesn't improve its economics.

Plan cash needs without assuming an exit

Start with obligations you must meet regardless of investment outcomes. Emergency spending, taxes, a home purchase, property costs, and fund capital calls can arrive while private holdings remain unavailable.

Consider a hypothetical, simplified cash-planning scenario. You have $40,000 available outside your emergency reserve, but $15,000 is needed for a known bill and $25,000 backs an unfunded fund commitment. All $40,000 already has a job. A valuable startup stake doesn't create additional cash for either obligation.

A practical liquidity plan has four parts:

1. Separate required cash. Keep emergency reserves and near-term obligations outside money committed to long-term, illiquid risk. Our emergency-fund framework explains that separation.
2. Include future contributions. Record unfunded commitments, fees, and asset-maintenance costs. Optional follow-on investments are different from binding capital calls.
3. Allow for delayed proceeds. Build the household plan without relying on a forecast acquisition, fund distribution, refinancing, or secondary sale arriving on schedule.
4. Account for shared risks. Startup employment, employee equity, angel investments, and venture funds can all become stressed together. Several holdings may still leave you dependent on the same market.

Our co-founder and general partner Elizabeth Yin wrote in Democratizing Knowledge (Hustle Fund, 2021), “Don't try to pick a co. Select a portfolio.” That portfolio perspective includes how investments fit your cash needs. Owning more startups doesn't make any of them liquid or eliminate the risk of loss.

To build a decision process before committing long-term capital, apply to Angel Squad. Our investor education and peer discussions help you work through startup opportunities and their tradeoffs. Membership doesn't create a resale market or guarantee investment access or returns.

This is general U.S. education, not individualized investment, legal, tax, accounting, or valuation advice. Private startup and fund investments can be speculative, illiquid, long term, and subject to total loss. Past results and current valuations do not guarantee future results. Governing documents, security rights, fees, carried interest, taxes, valuation policies, and transaction timing affect outcomes. Seek independent review from qualified legal, tax, and financial professionals for your circumstances and a specific investment.