If user is logged-in display/hide something

Your code won’t work in a themes functions file unless it includes a hook.

Try something like:

add_action( 'loop_start', 'your_function' );
function your_function() {

if ( is_user_logged_in() ) {
    echo '<li id="text-2" class="hide">';
} else {
    echo '<li id="text-2">'; 
}}