Q:What are liquid assets?
A:Before we get to the list of liquid assets, let us explain what they are in general. Liquid assets are assets that can quickly be converted to cash without a meaningful reduction in the asset’s value upon liquidation. It is important for businesses and individuals to have liquid assets to meet their short-term liability payments or to pay for unexpected emergencies that require cash.
List of Liquid Assets
- Cash – this is the most obvious one on the list and of course the most liquid. It can immediately be used to pay debts or used for emergency funds. Cold hard cash is king when it comes to liquidity.
- Cash in the Bank – money held in a savings or checking account is also considered very liquid because it can commonly be accessed quickly without any restrictions or fees. Simply head to a bank or an ATM and your money is readily available.
- Money Market Accounts – these types of accounts typically offer higher interest than your typical savings account. However, these accounts often feature a higher minimum balance as well.
- Certificates of Deposits (CDs) – CDs are commonly opened at banks for a set amount of money and provide a certain amount of interest to the account holder. The account holder agrees to keep his money in the CD for a set period of time to earn this interest. While CDs often come with early withdrawal fees, they are still considered liquid.
- U.S. Government Bonds – these type of bonds can easily be sold because of the safety they provide from the baking of Uncle Sam.
- Bonds – bonds are considered liquid according to their risk. If a company associated with the bond is likely to go bankrupt, the bond cannot be considered liquid because there is a serious risk that repayment will not occur. However, a bond in stable corporation can be considered very liquid. Essentially, the liquidity of a corporate bond varies based on the risk.
- Stocks – Stocks with a substantial trading volume that can be easily sold and converted to cash are liquid. For example, if you hold shares of Netflix (NFLX) in a major brokerage account, you can quickly convert these shares into cash assuming you are willing to sell at a feasible price. Stock that have a small trading volume and cannot be easily sold are not liquid.
- Mutual Funds – mutual fund are similar to stocks in that they can typically be sold quickly and converted to cash.
- Receivables – A receivable is the money that is due to be paid to a business. Receivables are considered current assets on the balance sheet of a business because they are typically paid within at least 60 days. Receivables are generally considered less liquid than some of the other assets listed above because there is a risk of delayed or non-payment.