What is Liquidity Premium?

April 10, 2025 08:46 AM AEST | By Team Kalkine Media

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Why do some investments offer higher returns than others? The answer often lies in the liquidity premium—an extra reward investors earn for taking on illiquid assets that are harder to sell quickly without a loss. In this video, we break down what liquidity premium means, why it exists, and how it affects your investment decisions. You’ll discover: • What qualifies as illiquid assets • Why investors seek a liquidity premium • The role of market volatility, default risk, and interest rate fluctuations • Real-life examples like real estate, private debt, and annuities • How institutional investors use this premium for long-term gain Understand how this premium helps balance risk and reward in your portfolio and why liquidity matters more than you think in turbulent markets.

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