![]() For example, if you're investing a down payment for a house that you plan to purchase in three years, you'll want to keep that money in a fairly liquid asset. From there, you can manage your liquidity accordingly. However, if your job or income are unstable, or if your lifestyle involves facing lots of unexpected expenses, you might want to incorporate a higher degree of liquidity into your portfolio.īeyond deciding how much cash you need to keep for unexpected emergencies, you'll need to identify what your goals are for your investments and the time horizon for each of those goals. A typical emergency fund strategy is to keep at least three to six months' worth of living expenses in a high-interest savings account. The first factor determines how much of your net worth should be kept in cash for emergencies. The time horizon for your savings and investment goals.Your individual liquidity needs will depend largely on two factors: You might want to keep even more of your assets in cash, or highly liquid assets, depending your lifestyle and financial goals. And when the market is down, stocks in general become less liquid because it's harder to sell them without losing significant value.Ī common rule of thumb is to keep at least 5% of your portfolio in cash. Low-volume stocks will be less liquid than popular stocks as it will be harder to find a buyer, especially if you're looking to sell a large amount. For example, an ETF that is widely-traded is more liquid than a niche ETF that isn't as widely traded. With stock market products, degree of liquidity usually revolves around demand. When it comes to bonds and CDs, degree of liquidity is dependent on their maturity date and any early withdrawal penalties. For example, tax-advantaged retirement accounts are completely liquid once you've reached retirement age, but less liquid before that due to early withdrawal penalties. The exact degree of liquidity of many of these assets depends on a number of factors. Tax-advantaged retirement accounts such as a 401(k) or IRA.Certificates of deposit (CDs) with less than one year to maturity.Treasury bills and treasury bonds with less than one year to maturity (or those than can be immediately sold on a secondary market).Savings accounts and money market accounts. ![]() After that, cash equivalents and marketable securities are considered the most liquid assets.Įxamples of liquid assets, roughly arranged by degree of liquidity, include: In addition to physical currency, this also includes checking accounts, savings accounts, money orders, and money market accounts. ![]()
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