Some investments can be sold in seconds. Others? Not so much.

Understanding the liquidity of your assets—how easily and quickly you can turn them into cash without taking a big loss—is an important part of building a strong financial plan.

What Is Liquidity?

When an investment is liquid, it means you can typically sell it whenever markets are open and receive a fair price. Think: cash, checking accounts, savings accounts, or money market funds. These are your most liquid assets.

On the other hand, illiquid assets are much harder to sell quickly—or without taking a hit on price. For example:

• Some hedge funds or private investments may have lockup periods—meaning you can’t touch your money for a year or more.
• Non-traded REITs (Real Estate Investment Trusts) often have limited liquidity and strict rules about when you can sell.
• Even normally liquid investments like stocks or mutual funds can become illiquid during market stress or when trading halts occur.

As one financial writer put it: “Liquidity is like oxygen—you don’t notice it until it’s gone.”

Where Most Investments Fall

Between the extremes of cash and complex alternatives are most of the investments you’re probably familiar with:

• Mutual funds
• ETFs (exchange-traded funds)
• Publicly traded stocks and bonds

These are generally liquid—you can usually sell them in a same-day transaction, even during market volatility. (Just remember: mutual funds trade once daily after the market closes, while ETFs and stocks trade throughout the day.)

Even real estate can vary in liquidity. A home or rental property may take weeks or months to sell, while a publicly traded real estate fund may be sold in seconds.

Why Liquidity Matters

Liquidity plays a big role in how you manage risk, meet short-term expenses, and avoid selling at a loss when you need cash.

• Cash is king for covering near-term needs and emergencies.
• Too much cash, though, may lose value over time due to inflation.
• Illiquid investments often offer higher return potential—but they come with trade-offs.

Find the Right Balance

We don’t believe in avoiding illiquidity altogether. In fact, embracing a certain level of it is often essential for long-term growth. The key is to:

• Keep enough liquid assets on hand to cover expected (and unexpected) expenses.
• Hold less-liquid investments strategically, as part of a diversified portfolio.
• Avoid being in a position where you’re forced to sell something at the wrong time just to raise cash.

Not sure where your portfolio stands on the liquidity spectrum—or how to balance short-term access with long-term growth? We’re here to help you build a plan that fits your life.