![]() Like mutual funds, an ETF is a portfolio of multiple securities. Investors can sell their shares and receive their money within days. These funds can only be traded at market close. These funds consist of money pooled from different investors into a diverse portfolio. These assets can instantly be sold on the secondary market. Also known as T-bills or T-bonds, respectively, these securities are short-term investments backed by the government with little risk of default. Like stocks, bonds can be sold anytime for cash during market hours. Bonds are low-risk investments that represent a loan made by an investor to a borrower, such as the government or a company. That said, stocks bought on over-the-counter markets are less liquid because they often have fewer buyers. One can buy and sell them at any time during market hours. Stocks can easily be bought, sold, or traded on public exchanges. Stocks are shares of public companies people own or are held in their name. It typically comes with early withdrawal penalties. These certificates represent an account with a fixed amount of money with a short- to mid-term maturity, upon which the investor can get back the money plus interest. Also called money market deposit accounts or MMDAs, these are interest-bearing accounts with features not typically offered in a typical savings account, such as higher interest rates. Cash-like equivalents refer to assets with short-term maturities that can be converted into cash quickly. It refers to money on hand or those held in checking or savings accounts. Here are some of the most common assets and investments considered liquid: In turn, the borrower is in a stronger position and can negotiate for better terms. ![]() The more liquid assets a borrower has, the less risk they pose to the lender. Some lenders look at the assets people own and how liquid they are to determine if they can cover mortgage payments, especially in times of financial distress. For example, setting up an emergency fund is one way to build liquid assets that can be used to pay for unexpected medical bills, home repairs, and other expenses.Ī portfolio with a substantial allocation of liquid assets may also help borrowers secure credit or qualify for a mortgage. Some investors also use liquid assets as a source of funds to deal with financial emergencies. Because of this, liquidity is a fundamental component of wealth generation. It is a key factor for investors, as assets with high liquidity allow them to convert their assets into capital for other investments or settle liabilities. Liquidity refers to how quickly an asset can be converted into cash or how easy it is to sell an investment.
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