What is liquidity?
Let’s define it in simple words first! Have you ever spent your days searching for things like gold price today in UP or Ahmedabad hoping to invest because you know you can sell it easily? The official term for that easiness is called liquidity. Liquidity is the degree of flexibility in an asset as evidenced by its readiness and ability to be converted into cash within a short period of time. The term liquidity has multiple meanings and is used differently by various types of investors, either institutional or individual. Liquidity can be seen as a positive attribute that generally increases the value of an asset, or a negative sign pointing to underperformance or lack of predictability.
Common assets with the highest liquidity
- Cash
Cash is the most liquid asset because it can be converted into any other asset quickly and at a low cost. It’s also relatively easy to carry around and store, which makes it useful in emergencies. Cash can be used to pay bills, make investments and even buy items like cars or houses.
- Treasury bills and treasury bonds
Treasury bills and bonds are short-term debt instruments issued by the government to fund deficits in order to fund the government through its expenses for a period of time. The bills are issued for periods ranging from 91 days, 182 days, and 364 days, with an average lifespan of about 1 year. They are considered highly liquid however they are zero coupon securities so you don’t get any interest on them.
- Real estate investment trusts (REITs)
These are stocks that own real estate, like apartment buildings or office complexes. They pay out dividends and may appreciate in value over time, but they’re not the same as cash because they have a long time frame to earn their returns.
- Bonds
Bonds are a good way to invest funds in a tax-advantaged account that provides higher interest rates than savings accounts or money markets. Bond funds are also known as fixed-income portfolios because their returns typically grow over time regardless of market conditions. The interest you earn on bonds will not be lost due to inflation and may even help you meet your retirement goals if your investment strategy involves earning more interest income from rising bond prices instead of bank deposits or stock dividends.
- Stocks
The most liquid assets are stocks. Stocks can be bought and sold at any time, allowing investors to easily move money into new investments and out of old ones. If you don’t like the stock market, you can sell it and take your profits. This is not possible with other forms of investments such as bonds or real estate, which have fixed returns and therefore cannot be sold at any time.
- Precious metals
If you go online and look up the gold price today Guwahati and decide to invest or sell the gold you already have you will realize you can do it in a few minutes. This is because precious metals like gold are highly liquid.
A large percentage of gold and silver is held as investment assets by central banks around the world. Most central banks will hold their reserves in gold or silver for this reason. These metals are also used as money in many parts of the world, so they are very liquid assets. Gold is traded on exchanges all over the world, so it’s easy to buy or sell it without having to deal with a middleman or broker.
