Our Views

Liquidity is the new king of investing

When it comes to investing money, liquidity should be highly significant consideration.

Liquidity is the ability to get access to your money when you need it. An instant access cash deposit account with a bank or building society is a example of a liquid investment, as are stocks traded on a listed equity market, such as the London Stock Exchange.

But not all stocks or investment funds are entirely liquid, resulting in investors having their money tied up when they need or want access. The recent debacle surrounding Woodford Equity Income is a good case in point and the continuing issues crypto-currencies face.

In this example, investors in the fund are unable to sell units due to a dealing suspension, because the fund manager held illiquid, unquoted company shares in his portfolio, which because of a higher proportion of the overall fund when the other, liquid holdings were sold.

Investors in Woodford Equity Income are not alone when it comes to being trapped within their investments.

New research, carried out by Experience Invest, found that 25% of UK investors currently hold investments they wish to liquidate, but cannot.

Nearly a third of the 800 UK investors surveyed for this research had attempted to exit an investment during the past five years but decided to stay put after learning they would incur exit fees.

And nearly two-thirds believe investment providers need to offer better education about strategies for exiting investments.

Unsurprisingly, 80% of investors want investment providers to be more transparent with their customers when it comes to how and when they can liquidate an investment holding.

“It’s reassuring to see that the vast majority of investors in the UK are
thinking carefully about their exit strategies before making an investment.
But there are still many who don’t. It is surprisingly common to hear of investors who, several years into an investment, are unsure of exactly how they can get their money back out. Indeed, our research underlines how many investors get stuck with assets they cannot liquidate – both they and the investment providers must be diligent in ensuring potential exit strategies are clearly explained. In light of this issue, it’s easy to understand why assets such as property – which can be sold in a relatively straightforward manner on an open market – remain so popular with investors. Nevertheless, all investments should be made with a clear exit strategy in mind; doing so will enable the investor to manage his or her portfolio effectively.”

Jerald Solis, Business Development and Acquisitions Director at Experience Invest

When making any investment, it’s crucial to consider your exit strategy. The right time to understand how and when you can leave an investment is before you invest, rather than when you wish to go.

Liquidity is a critical factor for modern investments, with the absence of any exit charges or penalties something investors should look for too.

Knowing when you may need to access your cash and what part of your portfolio is liquid is key.

At Juniper Wealth Management liquidity is a key factor in assessing investment suitability for our clients. This is especially important when working with buy-to-let business owners who have illiquidity built in to large parts of their wealth.

Jon DoyleLiquidity is the new king of investing