5 Investments That Can Be Harder To Sell Than You Expect

(MENAFN- Free Financial Advisor) An investment's estimated value doesn't guarantee a quick sale or a good offer. Collectibles, private company shares, non-traded REITs, annuities, and thinly traded stocks can all create unexpected obstacles when investors want their money back – Shutterstock

An investment can look terrific in a portfolio and become surprisingly inconvenient when someone actually wants the money. A property may have appreciated, a collectible may carry an impressive estimated value, and a private investment may promise attractive returns. Yet none of those figures guarantees a buyer will show up with a reasonable offer.

This is the part of investing that glossy performance numbers tend to leave out. Buying something can take minutes, especially with an online brokerage account. Selling it may involve paperwork, negotiations, penalties, waiting periods, or a disappointing realization about what buyers will actually pay. Five types of investments deserve particular attention before anyone assumes they can turn them into cash quickly.

1. Collectibles That Need the Right Buyer

Rare watches, vintage cars, sports memorabilia, coins, artwork, and other collectibles can attract serious money. Their owners sometimes track auction prices and dealer estimates with understandable enthusiasm. The trouble starts when an owner wants to sell rather than admire the collection's estimated value.

A collectible market depends heavily on taste, condition, authenticity, provenance, and timing. Someone may happily pay thousands for a particular baseball card, while another buyer barely glances at it. An appraisal can establish an estimated market value, but it does not guarantee an offer at that price. Dealers also need room to resell items, so their offers may fall below retail or auction estimates.

Selling privately can produce a better price, but it introduces other headaches. Owners may need authentication, advertising, insurance, secure shipping, and careful buyer screening. Auction houses can help locate interested bidders, although commissions and other fees reduce the proceeds. A valuable collection can therefore function more like a small business than a convenient savings account.

2. Private Company Investments That Have No Convenient Exit

Investing in a promising startup or privately held company can sound exciting. Perhaps the business has an interesting product, an ambitious expansion plan, or a founder who delivers a persuasive presentation. Investors may receive shares or another ownership interest and look forward to cashing in when the company grows.

Unfortunately, private company shares do not trade like shares of Apple or Microsoft. There may be no public exchange, no steady stream of buyers, and no convenient button that turns ownership into cash. The Securities and Exchange Commission (SEC) warns that private placement investments can be highly illiquid. Many carry resale restrictions, and investors may need to hold them indefinitely. The SEC's private placement guidance explains why investors must examine transfer restrictions before committing money.

Even finding a willing buyer may not solve the problem. The company might need to approve a transfer, and securities laws can impose additional resale requirements. Potential buyers also face an information disadvantage because private companies generally disclose less financial information than publicly traded businesses. A promising investment can therefore become a frustrating ownership commitment. Before buying, investors should ask how an eventual sale would work, who could purchase the shares, and whether the company offers any realistic exit opportunity.

3. Non-Traded REITs That Don't Trade on an Exchange

Real estate investment trusts, or REITs, give investors a way to participate in property ownership without personally managing apartment buildings, shopping centers, or office complexes. Publicly traded REITs offer familiar stock-market liquidity. Non-traded REITs operate differently, despite sharing the same basic investment structure.

Because non-traded REIT shares do not trade on public exchanges, investors cannot simply place a normal brokerage sell order. They generally must wait for the REIT to list its shares, liquidate its assets, or offer another permitted way to exit. The SEC notes that some liquidity events may take more than a decade. That is a rather long time to discover that an investment account doesn't behave like an ordinary investment account. The SEC's non-traded REIT bulletin also warns that early redemption programs often carry substantial restrictions.

Some REITs allow investors to request redemptions, but those programs may limit how many shares investors can redeem. The company may also suspend the program. Investors should examine redemption limits, fees, holding periods, and the conditions that allow the REIT to stop accepting requests. A property portfolio may look impressive, but investors still need a practical way to retrieve their money. Real estate exposure and easy access to cash are two very different benefits.

4. Annuities With Expensive Exit Doors

Annuities appeal to people who want retirement income, tax-deferred growth, or certain contractual guarantees. Depending on the contract, they can serve a useful purpose. However, buyers sometimes focus so heavily on the benefits that they overlook the cost of leaving early.

Many deferred annuities impose surrender charges when owners withdraw money during an initial period. These charges often decline over several years, although the schedule varies by contract. Some variable annuities also permit limited annual withdrawals without surrender charges. That flexibility can help, but it doesn't necessarily make the entire balance readily accessible.

Consider someone who purchases an annuity and later needs a substantial amount for an unexpected expense. The account statement might show a healthy balance, but withdrawing the full amount could trigger surrender charges. Taxes may create another expense, and withdrawals before age 591⁄2 may trigger an additional federal tax penalty in applicable circumstances. The SEC's variable annuity guide explains these costs and the restrictions some contracts impose. Annuities can also enter a payout phase that limits or eliminates access to the original lump sum. Reading the surrender schedule before signing matters considerably more than discovering it during a financial emergency.

5. Thinly Traded Stocks With Few Interested Buyers

A stock doesn't automatically become easy to sell simply because someone can find its ticker symbol online. Smaller companies, microcap stocks, and obscure securities may attract relatively little trading activity. Investors can purchase shares without much difficulty and then discover that selling requires more patience than expected.

The problem often appears in the bid-ask spread. The bid represents what buyers currently offer, while the ask represents what sellers want. With an actively traded stock, those prices usually sit fairly close together. A thinly traded stock can have a much wider gap. Selling immediately may mean accepting considerably less than the displayed asking price, assuming enough buyers exist.

Trading volume also matters. A small order might execute without difficulty, while a larger sale could push the price downward. FINRA explains these liquidity risks in its investor guidance on market liquidity. A limit order can help investors avoid accepting an unwanted price, but it cannot guarantee a sale. Sometimes the order simply sits there while the market carries on without it.

The Price of an Investment Isn't the Same as Its Cash Value

Liquidity rarely gets the same attention as potential returns. An investment might appreciate considerably and still leave its owner scrambling when money becomes necessary. That problem can become especially uncomfortable during retirement, a job loss, a medical expense, or an unexpected opportunity that requires cash.

Before purchasing an investment, look beyond its projected return. Ask how quickly you can sell, whether someone must approve the transaction, what fees apply, and whether you can accept a lower price to exit sooner. Read the redemption provisions and transfer restrictions rather than relying on a sales presentation.

A portfolio doesn't need to consist entirely of easily accessible investments. However, tying up money that might be needed soon can create unnecessary financial pressure. Sometimes the most attractive feature of an investment isn't how much it might earn. It's knowing you can get your money back without turning the process into another full-time job.

Which of these investments would make you most hesitant, and have you ever encountered unexpected difficulties selling an investment?

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