Your Liquid vs. Illiquid Investments

Video Transcript:

Hi, this is Dave Shepherd with Shepherd Wealth & Retirement.

Just wanted to go over a quick idea with you today that can help with your risk management
and protecting portfolios if markets do fall.

And that’s the idea that all of us have–
long-term investments, but some of them are illiquid,
and some of them are liquid.

Things that are illiquid, for example, might be the real estate we own, an office building,
a rental house.

Might be the businesses we own that are not easily bought and sold quickly–
things like that.

It could be a long-term pension plan that we have or profit sharing plan that we have,
and those things are illiquid.

We can’t get out of them, and by nature, we’re forced to be long-term investors there.

And we’re going to have to go through the ups and downs and the dips and wait for that
to pay off in the long run.

But there’s also another side to the investments we have that we consider
long-term investments because we all want to be, for example, in the stock market for the long run to have the best opportunity for growth.

But those types of investments are actually liquid every day, and so we can sell them in
the short run if we need to.

But so many people have this idea that, if I just hold on for the long term, that’s the best
way to do the stock market.

But our only area where we can risk manage is here on the liquid side.  So, when you think
about your portfolio and where you might protect yourself if markets slide heavily again
or things get really rough, we’re going to have to keep some assets that are illiquid that we
can’t do anything about.

Where we can do our risk management is over on the liquid side, where we can buy or sell and set
up rules in mathematically based ways that we can protect our money and our wealth
if markets do start to get rough.

So, a different way to look at it— is we don’t want to, I think, make the mistake of having
our liquid assets– that, yeah, we want them for long term, but if markets become rough
and we don’t sell them for the short term and protect ourselves or maybe sell a position or a
problem area that’s not doing very well, if we don’t do that, then unfortunately,
by nature, they become the long-term illiquid assets because we have to wait for
them to bounce back to get back to where they were.

And there’s all kinds of examples of stocks that have gone 15, 20 years to get back to where
they were before.  And some will never recover their value no matter how long you wait.

There’s one very prominent one right now that, since 2000, it’s still not even back to where it was in 2000.
So many times, we hold on to these things.  We lose value when we could
have liquidated them and done something to protect ourselves, and then we’re forced into a
long-term investment.

But I think it’s better for us to think about we can’t change these assets when markets are rough,
but this is where we can protect ourselves.

Hope that gives you maybe an idea that you can use in your portfolios.

If you have any questions or comments, we’d certainly like to talk to you at a time.

Thanks so much for listening.

Have an awesome day!

About Dave Shepherd, ChFC, CFP®

Dave is the founder of Shepherd Wealth & Retirement in Tucson, Arizona. Dave is a Chartered Financial Consultant (ChFC) and Certified Financial Planner™ practitioner (CFP®). Have a financial question? Click Here to contact Dave Shepherd.

Investment advice offered through Shepherd Wealth Group, a Registered Investment Adviser doing business as Shepherd Wealth & Retirement.

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