Liquid asset can be defined as an asset’s ability to be sold at the earliest for the purpose of investment or to meet payment obligations (such as corporate debt) without causing any major changes in the price or loss on its value. An asset’s liquidity can be measured on the basis of how often it is bought and sold. The most common types of liquid assets are currency and coins.
Liquid assets are handy in tricky situations of debt, job loss or unexpected medical costs. For an organisation which is in loss, liquidating assets is a preventive measure, taken before filing for bankruptcy.
Below listed are the two most common types of investments of liquid assets.
- Liquid asset accounts: This is the most common kind of liquid asset: preserving cash in savings accounts in banks. The banks, many a times, set a criterion with regards to the amount that must be in savings account at any point in time in order to ensure enough liquidity at all times. When going for liquid asset investments, it is best to maintain a separate account for investment transactions.
- Liquid asset stocks: This is one of the best examples of liquid assets: cash flow in stock markets. The thumb rule of stock investing is – Buy stocks at a low price, wait for an increase in their value and sell them when the price hits the maximum peak to gain profit. Liquid asset stocks constitute of mutual funds and stocks. If you have not got liquid asset stocks and are interested in stock investments, make sure to thoroughly study the stock market. Decide the kind of stocks you would like to invest in. Make sure the stocks you buy have a sturdy financial background. Stocks are best liquid assets which can be sold in case of emergencies to fetch you the required money without much loss and delay.
- Other examples include:
- Cash in savings/checking account
- Stocks and bonds
- Credit union shares and mutual funds
- Promissory notes and mortgages (negotiable and payable to applicants)
- Certificates of Deposit
- Tax refunds
- Trust fund monies
Liquid assets may or may not contain jewellery. The only time jewellery is considered as a liquid asset is when it is sold quickly enough for the same amount or more than it was purchased for. Liquid assets are one of the best ways to invest money apart from their importance in cash flow during emergencies. A person who wants to build a healthy financial platform for himself, must have the right combination of both fixed assets and liquid assets. Fixed assets are like investments which are not easily accessible for fetching money, whereas liquid assets help you with ready cash in a minimal period of time. The amount of liquid assets to be maintained solely depends on a person’s monthly expenses and estimation of anticipated and unexpected expenses (should they arise in future).
