Liquidity is the ability to quickly convert your investment into cash with little or no loss in value. This is important if there is a possibility that you will need cash in the near future.
For example, a down payment on a new home means that you can sell the house later and turn it into cash. But a property like that can take a while to convert. However, assets like bonds or stocks can be turned into cash fairly quickly. Cash is the most liquid asset, while investments such as land or other sorts of real estate are less liquid.
After you determine your liquidity requirements, along with answering the first three questions from this series, you will be ready to choose your investment goals. Choosing the right investment goals will be the subject of the next newsletter, but for now, let’s consider liquidity requirements.
Knowing your investment goal(s)
- Why am I investing
- What is my time horizon
- What is my risk tolerance and capacity
- What is my liquidity requirements
- Choosing my investment goal
- Growth
- Conservative Growth
- Income
- Preservation of Capital
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