If you’ve ever been in a financial situation where you need money immediately, then you’ve heard of liquidity. Liquidity is all about how fast you can convert your assets into cash, and some assets are easier to liquidate than others. For example, stocks and bonds are easily liquid because they can be converted into cash within a couple of days. On the other hand, larger assets, such as property and equipment, are not easily turned into cash.
Cash is the most liquid asset. However, there are other investments that are easily converted to cash. Two of these assets are stocks and bonds. Because they are so easy to convert to cash, they are usually referred to as liquid assets.
Collectibles, such as coin stamps and artwork, are less liquid than cash or stocks but more liquid than larger assets such as land or equipment. These items can be sold quickly at a discount, but if you want to sell them for their full value, they may have to wait a while for the right buyer.
Finally, land, real estate, and equipment are considered the least liquid assets because they can take weeks and months to sell. While these assets may have a high value, the fact that it can take a long time to receive the cash value for the assets makes them difficult to rely on if cash is needed immediately.
When you start to build your financial portfolio, it’s important to think about your assets’ liquidity level before investing. If you have too many assets that are difficult to convert back into cash, then you’ll be at a disadvantage if you need a lot of money for an emergency. In this case, having a balanced portfolio with a healthy amount of liquid assets and larger assets will keep you in the best financial position.