What is a liquid investment?
A liquid investment is any investment that can easily be converted into cash without significantly affecting its value. In addition, it must be easy to transfer ownership of the asset to another party. The sum of these investments can be aggregated and compared to that of a companyshort-term debtsto see if there are enough liquid investments to pay the obligations, which is an important indicator for companiesliquidity.
Examples of liquid investments
Examples of liquid investments include cash, money market funds and stocksheld publiclycompanies that actively respond to an established valuescholarship. In all cases, transferring these assets to a third party is easy and there is a clear market for it.
Examples of illiquid investments
Investments are not considered liquid if they take a significant amount of time to convert into cash, or if selling them reduces their value. For example, real estate can take a long time to sell and is therefore not classified as a liquid investment. Or the shares in a companythinly tradedcannot be sold in bulk without causing a significant downward price shift, and are therefore not considered liquid.
