Illiquid funds: unveiling the hidden potential in your wealth portfolio

When crafting your financial plan and objectives, exploring various investment strategies requires a thoughtful grasp of available options.

Illiquid funds

When crafting your financial plan and objectives, exploring various investment strategies requires a thoughtful grasp of available options. Illiquid funds, a lesser-discussed aspect of investing, present an intriguing avenue that could potentially complement your wealth portfolio. This article explores illiquid funds, shedding light on their purpose, advantages, and considerations.

Illiquid funds, characterised by their lack of immediate liquidity, encompass investments that aren't easily traded on public markets like stock exchanges. These assets, which include real estate, private equity, venture capital, and select hedge funds, require time before they can be converted into cash. Financial advisers may  recommend illiquid funds for various reasons, including,  they contribute to diversification by exhibiting low correlation with traditional stocks and bonds, thereby distributing risk across different market segments. Moreover, illiquid funds provide access to non-conventional opportunities that hold potential for long-term returns.

However, the realm of illiquid funds is not without intricacies and trade-offs. The allure of potentially higher returns is counterbalanced by the challenge of limited liquidity. Investors should be aware that their capital might be tied up for extended periods, sometimes spanning several years, before yielding rewards. Additionally, the valuation of illiquid assets can be more complex compared to publicly traded securities.

Whether or not you're a seasoned investor, understanding the dynamics of illiquid funds and their role in your wealth portfolio is a decision best made in collaboration with a professional. As you contemplate the potential of illiquid funds within your investment strategy, it's prudent to consult a financial adviser, who can offer tailored insights based on your individual situation.

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The article was prepared by BT - Part of Westpac Banking Corporation ABN 33 007 457 14, AFSL and Australian Credit Licence 233714 and is current as at 3 October 2023.

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