What Are the Benefits of Having Liquid Assets?

Liquid assets can be quickly converted into cash.

Liquid assets can be quickly converted into cash.

A liquid asset isn’t something you serve in a champagne glass at a party. It's an account or low-risk investment you can quickly and easily convert to cash with little or no penalty. Examples of liquid assets are Treasury bills, savings accounts and money-market accounts. Flexibility and accessibility are just two of the ways liquid assets can help you stay ahead in the financial game.

Being Prepared

Emergencies can hit you without warning. When they do, you'll want some liquid assets on hand to serve as an immediate financial cushion. That's in contrast to non-liquid assets, such as real estate, that may be more valuable but will require some time to sell. For example, assume you have $25,000 in a money-market account and you lose your job. That money is immediately available to help you pay your bills while you look for your next opportunity.

Ready to Strike

Holding liquid assets, such as a money-market account, can benefit your investment portfolio. You can use the liquid asset to buy new investments at the optimal time without needing to sell other investments. You can sell those other investments on your own schedule. For example, if you hold a portion of your portfolio in a money-market account and discover a hot stock, you can buy that stock without selling your other stocks or investments.

Lower Risk

Since liquid assets can be sold swiftly and at a full value, they typically carry a lower risk than non-liquid assets during times of market uncertainty. When investors get nervous, such as during a financial crisis, you might be able to sell a non-liquid asset but only for a steep loss. Some liquid assets, such as a savings account, are insured by the federal government up to a certain amount. You can sleep well knowing they're safe and have little chance of losing value.

Stronger Financial Profile

When you apply for a loan, such as a mortgage, liquid assets can increase your chances of approval. They show you have the discipline to put money away and are more likely to make your payments. In some cases, a mortgage lender could require you to have three months worth of living expenses in liquid assets. You'd score even more points with that lender if you can prove you have six months of expenses in a savings account.


About the Author

Bryan Keythman has performed stock investment research and writing for a consulting firm since 2008. He also has prior experience sourcing and underwriting commercial real-estate investment and development opportunities for a commercial real-estate developer. Keythman holds a Bachelor of Science in finance.

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