The Intelligent Investor's Almanac
Your Bi-Weekly Guide to Markets, Movements, & Money.
Presented By Ken Majmudar & Ridgewood Investments
Issue 16 • October 16 to October 31, 2025
Never miss another valuable edition of The Intelligent Investor's Almanac again.
✦ TL;DR — Your Institutional Intelligence in Minutes
We cover two major wealth risks in this issue:
Hidden Cost of Illiquidity:
A large share of family wealth is invested in assets that can’t be accessed quickly or without incurring significant transaction costs, reducing flexibility when liquidity might be needed.
Private holdings appear secure until flexibility is needed and exits demand concessions or fire sales that reduce long-term returns.
Illiquidity in investments heightens opportunity costs, delays reinvestment and constrains decision-making when valuations may be most attractive.
✦ Action: Schedule a Private Consultation to assess whether your portfolio’s liquidity profile has the right balance between long-term growth and near-term access to cash.
Smart Borrowing in Real Estate:
Used wisely, real estate borrowing lets investors invest in a manner that preserves liquidity for new investment opportunities.
Long-term property loans allow wealth to grow through appreciation and inflation without creating unnecessary tax liabilities.
Real estate borrowing works best when loan terms match the asset’s time horizon, enabling investors to refinance when conditions are favorable.
✦Action: Schedule a Private Consultation to explore how real estate leverage can enhance control and compound wealth over time.
The Value Investor
Ken Majmudar, CFA & Founder of Ridgewood Investments
“Cash combined with courage in a time of crisis is priceless.”
– Warren Buffett
Illiquid assets such as private equity, venture funds, and real estate often give an impression of stability because their valuations adjust infrequently, yet their hidden costs emerge when access to cash becomes urgent.
In recent years, investors have sold private-equity interests 10%-40% below value simply to raise cash, while commercial property transactions that once closed easily now require prolonged time and concessions to attract buyers. Illiquidity feels comfortable in stable periods, but during volatile or declining markets it can become a constraint.
On the other end, real estate borrowing can provide liquidity without disrupting long-term compounding. By using property financing instead of selling investments, investors can access cash while keeping a larger share of capital allocated to growth.
The Hidden Cost of Illiquidity
Illiquidity refers to owning assets that can’t be converted into cash without delay or selling for less than its market value. It is most evident in real estate, private equity, startup investments, or business ownership, where asset values may rise even as investment gains remain unrealized until a sale, refinancing or distribution occurs. A property that appreciates or a company stake that grows may create wealth but not accessible capital.
Public equities and mutual funds, by contrast, can be sold almost instantly, showing that the benefit of ownership depends on access when it matters most. Even within less liquid investments like real estate, professionally managed investment funds may offer periodic redemption opportunities that provide liquidity for typically illiquid asset classes. Ridgewood Investments can help determine if these types of investments are appropriate for you. Schedule a call today to discuss your specific situation.
The following section explores how wealth building should include liquidity considerations as part of the overall portfolio.
The Cost of Wealth You Can’t Use
Illiquid assets are also valued less frequently, often giving investors an incomplete picture of their underlying value. Private equity, real estate, and venture holdings are typically revalued quarterly, semi-annually or annually, which can create an illusion of stability that doesn’t show the real extent of underlying changes in price movements.
In contrast, public equities are priced in real time during market hours, reflecting real-time changes in sentiment, earnings, and risk. The difference in valuation frequency means private investments seem less volatile but offer less visibility into actual performance, leaving investors uncertain of their real value until the investment is sold or realized.
A 2025 EY study found that U.S. households with over $10 million in investable wealth hold roughly 55%-65% in illiquid assets. Typical exposures include:
Direct real estate – Homes, Private developments, and Farmland requiring 60-90 days to transact.
Private equity and venture capital – Capital locked for 5-10 years in fund cycles.
Private credit – Lending vehicles or funds with 3-5 year terms and gated redemptions.
Illiquid holdings often increase across generations, rising from about 20% to more than 80% by the third. Many families focus on net worth figures while overlooking liquidity, a bias shared by nearly 39% of investors.
The Illusion of Control
The need for cash and flexibility often tells us how quickly illiquid investments can become restrictive. In 2024, the U.S. private-equity secondary market reached $162 billion and is projected to cross $200 billion in 2025, highlighting how investors are increasingly relying on resale markets to meet liquidity needs before their funds return capital. These transactions are driven less by performance and more by the need for liquidity.
Real-estate volumes tell a similar story. In 2023, commercial sales fell more than 55% year-over-year as rising rates increased financing costs and reduced buyer participation. Assets that previously sold within weeks often took months to close, with discounts widening simply to attract bids. In private-credit funds, redemption requests beyond 10% of NAV led funds to temporarily pausing withdrawals until pending requests could be processed.
The Mathematics of Opportunity Cost
Liquidity on the other hand, helps investors compound wealth indirectly, by staying flexible enough to invest when valuations become attractive across different asset classes. PIMCO’s 2024 framework estimates that the average investor forgoes 1.6% to 1.9% a year in expected return by holding illiquid assets, while those unable to redeploy during downturns often miss opportunities that can enhance returns by more than 3%.
Private markets show the same trade-off. Private-equity funds typically carry a 10-year lock-in period, but in 2024, investors began selling their fund interests far earlier. The average stake sold on secondary markets was only 6.6 years old, almost four years before the usual cycle ends. By exiting early and accepting discounts to recover cash, investors accepted near-term liquidity at the cost of future returns.
Illiquidity also limits the ability to reinvest when new opportunities emerge. An investor with highly liquid investments can reinvest gains as opportunities appear, while illiquid investments have to wait for redemptions over time. Investors who maintain adequate liquidity can wait for valuations to recover; those without it often end up selling when conditions are least favorable.
Forced Sales: An Emergency Tax
Illiquidity imposes its highest cost during market downturns or when investors need access to capital. In normal conditions for example, private-equity interests are usually valued at about 90% of NAV, but during market downturns, pricing can compress to 60%-70% of reported value.
Across asset classes, this ‘emergency tax’ appears in different ways:
Real estate: Distressed refinancings or forced sales often reduce realizable proceeds by 25%-40% relative to estimated fair values.
Private equity: Secondary-market sales during periods of market downturn typically transact at 30%-40% discounts to NAV
When liquidity becomes too limited, decision-making flexibility decreases. Families may hold substantial assets yet face constraints meeting tax obligations, maintaining expenses, managing estates, or pursuing new opportunities without selling core holdings at unfavorable prices.
Summary: The Hidden Cost of Illiquidity
Dynastic Wealth – Tips on Preserving and Building Your Legacy
Real Estate Leverage: How Borrowing Builds Long-Term Wealth
Leverage implies using borrowed money to purchase an asset while contributing a relatively small proportion of the purchase price as equity capital. In real estate, it allows investors to buy a property worth far more than their initial investment, earning returns on the entire value while only funding a portion.
Because the underlying property serves as collateral and produces income, borrowing becomes a strategic and efficient way to compound wealth over time.
Why Borrowing for Real Estate Often Outperforms Paying Cash
Across generations, families who used leverage in real estate have compounded wealth more efficiently than those who purchased entirely with cash. Long-term mortgages create an advantage that few other asset classes offer: investors retain ownership of appreciating, income-producing assets while keeping additional capital productively invested elsewhere.
A long-term loan with a fixed interest rate allows inflation to gradually reduce the real cost of the borrowed amount, which means you repay it with money that’s worth less than at the time of borrowing.
Imagine two investors purchasing identical $1 million properties. Investor A pays entirely in cash, committing all available capital to a single property. Investor B buys the same property, with 80% financed through a mortgage, retaining $800,000 for new investment opportunities.
If real-estate values rise 5% a year, a $1 million property bought with a 20% initial payment increases to about $1.63 million over ten years. Meanwhile, regular mortgage payments reduce the loan balance, so equity grows from $200,000 to approximately $950,000 to $1,000,000 (depending on interest rate and amortization schedule), more than quadrupling. In reality, your ownership stake would grow even more as the loan balance gradually declines, because gains accrue on the entire property value, not just the initial investment.
Holding for the long term enhances this advantage. Each year, property values compound while loan balances decline, gradually increasing the investor’s ownership share. Over time, that steady growth turns patience and discipline into real financial leverage.
The Math & Mechanics Behind Productive Leverage
Leverage works when the return on capital exceeds the cost of borrowing. A property appreciating 7%-8% annually while financed at 5% delivers an incremental gain that compounds year after year. When interest payments are tax-deductible and inflation reduces, the gap between return and cost compounds to the borrower’s advantage.
Real-estate leverage also differs from margin loans on stocks. Equity investors face daily mark-to-market pricing, collateral calls, and fluctuating rates. Real-estate loans, by contrast, are typically fixed for years, supported by tangible collateral and predictable cash flow.
Smarter Ways to Finance Property Growth
Ensure Enough Cash Flow Generation to Cover the Debt
Properties that generate steady rent or business income make debt secure and more predictable.Finance Long-Term Assets with Long-Term Loans
Choose long-term, fixed-rate loans so your borrowing costs stay unchanged even when interest rates rise.Build in a Margin of Safety
Make sure you can cover mortgage payments even if rental income slows or interest costs increase.
Together, these elements make borrowing a strategic way to build wealth rather than an unnecessary risk. When you borrow, the amount received is not considered taxable income, it is a loan to be repaid later with your after-tax earnings. Over time, inflation gradually reduces the real value of that debt, making it effectively cheaper to repay.
When Leverage Adds Risk, and How to Keep It in Check
Leverage improves outcomes when conditions are favorable but can significantly increase risks during downturns or volatility. In real estate, risk often appears through three ways:
Higher interest costs: When borrowing costs rise with interest rate adjustments, cash flow becomes constrained as loan costs rise.
Vacancy or rent decline: A drop in rental income or higher vacancy reduces property revenue, while fixed debt payments leave less income to cover expenses.
Refinancing pressure: When property values decline, lenders may require additional equity or offer less flexible terms, making refinancing or renewal more difficult.
Liquidity challenges may arise for any investor when multiple risk factors occur simultaneously. The key to managing this challenge is preparing in advance, anticipating potential risks rather than waiting to respond after they arise.
Leverage is most effective when it helps you grow and maintain ownership of your assets instead of forcing you to sell or reduce your stake. In other words, borrowing should be used to build on what you already own, not to substitute or replace it.
Wealth is built and preserved not by avoiding debt, but by managing it well. Borrowing, when used with purpose, helps maintain control and protect long-term ownership.
Here’s to building lasting wealth,
Ken Majmudar, CFA
Founder & Chief Investment Officer Ridgewood Investments
P.S. If you’re ready to explore how our institutional-grade investment approach can work for your portfolio, let’s schedule a time to talk below.
Gain Industry – Level Intelligence For Your Investment Strategy
Transform your approach to wealth building with institutional-grade insights. Schedule a private discovery call with Ken and the Ridgewood team to:
- Analyze your current portfolio positioning
- Explore sophisticated investment opportunities
- Design your personalized wealth architecture
Building generational wealth requires institutional-grade thinking. Let’s discuss how our sophisticated approach can work for your family’s future.
Important Disclosure: Ridgewood Investments is a registered investment adviser. This newsletter is for informational purposes only and does not constitute investment advice. Past performance is not indicative of future results.