The brownstone stands tall with ornate ironwork, grand staircases, and crown-molded ceilings—an architectural jewel in one of the city's most coveted enclaves. Trophy properties like these captivate with their beauty and exclusivity.
But despite the allure of owning a one-of-a-kind real estate, such investments often come with a hidden cost: liquidity. In this world of grandeur, unlocking your wealth when you need it most isn't always so effortless.
Liquidity is the ability to quickly convert an asset into cash without significantly reducing its value.
For example, if you lose your job, you may need cash to cover rent, groceries, and other essentials. Without income, savings become the primary resource. If those savings aren’t in cash, you might have to sell investments such as stocks, mutual funds, or exchange-traded funds (ETFs).
During a financial crisis, however, markets can be highly volatile. Selling investments at a loss during such times may lock in reduced values, worsening your financial position. A lack of liquidity can result in missed mortgage or rent payments and long-term damage to your credit score.
Even high-net-worth individuals (HNWIs) may face challenges if their wealth is concentrated in illiquid assets like real estate, private businesses, or collectibles.
Beyond emergencies, having funds readily available in a liquid asset, such as a money market fund, allows you to act quickly on time-sensitive investment opportunities. This may involve making a down payment on a new home, capitalizing on value-boosting home renovation trends, buying undervalued assets, or investing in a new venture.
Conversely, holding capital in less liquid assets like non-fungible tokens (NFTs) could delay such transactions due to the time and uncertainty involved in finding a buyer.
Let’s take a closer look at the distinction between liquid and illiquid investments:
Liquid assets are those you can quickly sell for cash without losing value. They often mature fast, allowing you to sell at a profit. This makes them useful for handling emergencies, avoiding debt, or investing in new opportunities without much hassle.
Keeping money in liquid investments helps protect your capital. Bank accounts like checking, savings, and certificates of deposit (CDs) are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) for credit unions. This insurance safeguards your funds if the bank or credit union fails.
In contrast, illiquid assets cannot be quickly turned into cash without potentially losing value. Real estate and fine antiques are typical examples of investment options that are less liquid—they hold value but take time to sell.
If you tie up too much money in an investment with the least liquidity, you may face cash shortages and be forced to rely on high-interest credit cards to pay bills. This can increase debt and harm your retirement and other financial goals.
Think of a penthouse with panoramic views of Central Park in Manhattan or the iconic Faena Residences Miami, which is redefining high-end riverfront living. What sets trophy properties apart is their striking architecture, unique locations, and rich histories.
However, owning such prestigious real estate carries significant liquidity risks. Trophy properties attract a very limited buyer pool due to their high price points and unique features, increasing the risk of prolonged time on the market.
If you need immediate access to cash, selling quickly often means offering a substantial discount, which can erode the investment’s value. Thus, much of your wealth is locked into a single, high-value asset that can’t easily be accessed or moved.
Here are several often overlooked risks tied to trophy properties that can disrupt financial planning:
Unlike the mid-tier market, high-end real estate is susceptible to economic shifts, political changes, and global events. During recessions or market downturns, luxury properties often take longer to sell, with buyers accepting lower offers.
In April 2025, pending sales of U.S. luxury homes fell 9.9% year-over-year—the steepest drop since August 2023. This decline was mainly due to a stock market downturn in April, which affected affluent buyers relying on selling stocks to fund down payments.
As an investment with the least liquidity, trophy properties come with massive price tags, but the financial commitment doesn’t stop at purchase.
One of the major risks of investing in luxury real estate is the ongoing costs, which can be substantial, especially for older, historic, or uniquely designed homes. You may need specialized staff for maintenance, security, or preservation, turning ownership into a continuous investment.
Insurance premiums also run higher. For example, a high-value home with $750,000 in coverage averages $4,461 annually, or about $372 monthly—far more than the $195 monthly cost for standard $300,000 coverage.
Investing heavily in illiquid assets like trophy properties can limit your ability to rebalance portfolios, seize other profitable investments, or respond to cash-flow needs quickly. Unlike equities or bonds, trophy properties cannot be partially sold, making them a rigid component of an investment portfolio.
A study by Fidelity Institutional Wealth Adviser (FIWA) concluded that allocations to private assets, including illiquid real estate, may not be appropriate for households with less than $1 million in total assets, due to challenges in meeting withdrawal needs and maintaining target asset allocations.
These insights are based on factors like spending rates, the risk of allocation drift during market downturns, and life events that demand access to liquid capital.