The ‘Sleeper Risk’: Understanding Liquidity & Investing

Lifeforce Financial Services not only takes pride in being fully independent in our financial advisory services, but we have considerable investment opportunities that enable us to provide tailored investment platforms for our clients to build diverse and profitable portfolios. Inside of this arena, there are many pitfalls to avoid, and terminology that needs to be understood in terms of the risk posed.

If there is one topic the investment community struggles to convey to investors, it’s the concept of ‘risk’. Most often it’s some form of volatility measure or capital loss potential. While these concepts capture the effect of risk, we are more interested in the cause of risk. The recent EU referendum (‘Brexit’) has demonstrated just how sleeper risk is something which investors need to be acutely aware of. (Click on the link below to read our full report on how this has affected the investment arena.)

Liquidity, or rather, the lack of liquidity, is potentially one of the most damaging risks to investors. Its potential to cause sizeable capital loss stems from the fact that it can have the effect of sharply repricing assets down, mixed up with the anxiety that the investment in question is often rendered inaccessible. This leads to what is commonly known as a ‘fire sale’.

This is exacerbated by the fact that in many cases of liquidity crisis, the perceived risk is substantially lower than the actual risk (hence the name ‘sleeper’).

The following questions are answered in our June Investment Review (download through the link below)

  1. Why is Liquidity risk so often missed or underestimated?
  2. How does liquidity risk play out?
  3. What to do?

JUNE INVESTMENT REVIEW – INVESTMENT LIQUIDITY: THE ‘SLEEPER RISK’