What Is a Liquid & Non-Liquid Asset - What is the Difference?

Many individuals maintain a mix of liquid and non-liquid assets to diversify their wealth. Liquid assets provide immediate access to cash when needed urgently. Equally, holding an excessive amount in non-liquid assets may necessitate making sacrifices or incurring debt to raise cash quickly.

What are liquid investments?

Liquid assets are easily converted to cash quickly with minimal influence on their total value. It is important to have liquid assets on hand in case you need money right away. For example, cash in a checking account is liquid.

If you have an unforeseen expense for medical care or bike repair expenses, funds in your checking account are ready to cover them quickly.

Here are some cases in point of liquid investments

Cash – Cash on hand, checking accounts, savings accounts, bank accounts, money market accounts
Cash equivalents – Certificate of deposit CDs, treasury bills - watch for penalties.
Marketable securities – stocks market, bonds, mutual funds - price may fluctuate.
Money market funds - low-risk investments with check-writing privileges.
Accounts receivable business only money owed by customers.
Some investments - annuities and life insurance may have surrender charges affecting liquidity.

What is a non-liquid investment?

Non-liquid assets are difficult to convert quickly into cash without losing significant market value. For example, real estate, despite its equity, cannot easily cover sudden expenses like medical emergencies without a time-consuming sale process, fees, and potential relocation. Selling at discounted prices fire sale may speed up liquidity but often results in losses relative to market value.

Here are some of non-liquid investments

Real estate - house, land
Collectibles - art, antiques
Vehicles - cars, boats
Business equipment
Private business ownership
Intangible assets - copyrights, patents

Types of liquid assets

List of various types of liquid assets are,

Accounts receivable - Outstanding invoices
Accrued income
Cash equivalents - money market funds
Cash in bank accounts - checking and savings
Cash in hand
Certificates of Deposit CDs
Government bonds
Marketable securities
Promissory notes
Stocks publicly traded shares
Tax refunds

Liquid vs. non-liquid assets

The key points about liquid vs. non-liquid assets,

Liquid assets	Non-liquid assets
Easily convertible to cash with minimal loss in value	Difficult to convert to cash without significant loss
Examples: cash, stocks, bonds, savings accounts	Examples: real estate, collectibles, business interests
Ideal for short term financial needs	Suited for long-term investments or personal use
Provide flexibility and quick access to funds	Require time and effort to sell or liquidate
Important for emergencies and short-term goals	May appreciate in value over time

Conclusion

Your financial objectives and your plan for achieving them will determine the ideal ratio of liquid to non-liquid assets. Maintaining adequate money for emergencies can be ensure by speaking with a knowledgeable financial advisor.

Pro Tip

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Frequently Asked Questions

1. Is gold a liquid asset?

Gold and silver platinum are liquid assets.

2. Is it good to invest in liquid funds?

Liquid fund investments are a good choice for people looking for short-term ways to invest their extra money.

3. What are liquid investments?

The liquid investments are cash in hand.

4. Is stock a non-liquid asset?

No, Shares, bonds, certificates of deposit, and stock are examples of common liquid assets.

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