We speak of liquidity risk if, in the absence of sufficient demand, an investment cannot be sold, or only sold with a delay, high expenses or large value discounts.
Its relevance depends on the size of the single investment. The greater and more concentrated the assets are, the more important it becomes. With small and more broadly diversified assets, it is of less importance.
In particular, however, the liquidity risk depends on the availability of a functioning market for the respective investment.
With most listed stocks and bonds – as well as with open-ended investment funds – the liquidity risk is mostly low and has only short-term relevance.
With real estate and closed-ended funds, however, it can become very important in the medium term as well as in the long term and outbalance even the remaining risks. With these investment forms it is often underestimated.