A liquid asset is any item that can be converted into cash quickly and easily, at or near its market value. It can also refer to cash on hand, checking accounts, treasury bills, banking accounts, and short-term promissory notes. It enables an individual or entity to access cash any time they desire.
What Are Considered Liquid Assets?
Apart from what have already been mentioned above, other liquid assets include:
- Certificates of deposit (CDs) – These are slightly less liquid than others as you may have to pay a small fee for withdrawing money before your investment has matured.
- Stocks – These can often be sold by simply clicking a button, and for full market prices on demand.
- Bonds – These have fluctuating degrees of liquidity but they can usually sell them easily and close to their market value.
- Mutual funds – You can sell these on a daily basis because, as you place a selling order, the position would be converted to cash or liquefied the next day.
- Equitable securities – These have a high trading volume and can be sold quickly, but under the right conditions.
Investing in Liquid Assets
Even without other investments, it’s necessary to have a cash reserve. This is to ensure that you have money to spend in the event of an emergency. Of course, the amount or level of liquid assets to keep on hand varies greatly and depends on estimated monthly expenses and other personal factors.