Many investors hold a mix of liquid and illiquid assets, from stocks and real estate to jewels. Liquid investments may be turned into cash on short notice if needed. Illiquid investments can provide less market risk and sometimes longer-term value.
LIQUID INVESTMENTS
A liquid asset can be sold quickly, and its value doesn't drop when converted to cash. Examples include cash and its near equivalents, such as stocks and bonds. Several factors must be present for an asset to be considered liquid. It must be an item in an established market with a large number of interested buyers. Ownership must be easily transferred.
Cash on hand is considered to be a liquid asset because it can be readily accessed. The money in your checking account, savings account, or money market account is considered liquid because it can be withdrawn easily to settle liabilities.
A liquid asset is either available cash or an instrument that can easily be converted to cash. Liquid assets are perceived as being essentially identical to cash because they don't lose value when they're sold.
Liquid assets differ from non-liquid assets such as vehicles or jewelry, which can take longer to sell. They may also be sold for less than their true value.
Cash Equivalents
Cash equivalents are typically investments that have short-term maturities of less than 90 days. Examples of cash equivalents include:
- Stocks and marketable securities that can be converted to cash in a relatively short period in the event of a financial emergency.
- Government of Ghana (GoG) Treasury Bills and Bonds.
- Mutual funds in which money from various investors is pooled and invested in a variety of financial securities including stocks and bonds.
- Money market funds, a type of mutual fund that invests in low-risk, low-yielding investments such as municipal bonds.
ILLIQUID INVESTMENTS
An illiquid asset, on the other hand, is the opposite, such as real estate, art, and antiques. Non-liquid assets are those that can be difficult to liquidate quickly. Land and real estate investments are considered to be non-liquid assets because it can take months or more for an individual or a company to receive cash from the sale.
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