Essentials

Liquidity is one of the most important investment characteristics you never think about

But it has a huge impact on your investment selections and personal finances

Photo by Eduardo Soares on Unsplash

What is liquidity?

While “how liquid is it?” may sound like a question from a science exam, it’s actually an incredibly important characteristic of any asset. Liquidity is essentially how easy is it to buy and to sell something.

The reason why most people haven’t thought too much about it is simple. Most investors have a pretty good, intuitive understanding of liquidity in most “mainstream” assets.

• Stocks can generally be bought and sold fairly easily on the weekdays between certain hours. If you sell assets, you have the money back in your bank account within about a week.
• Cryptocurrencies can generally be bought and sold 24/7 with the ability to get money into a bank account within a week or less.
• Most people’s main entry into real estate is when they purchase their home. I think people generally understand that buying and selling a house is a bit of a process.

In terms of liquidity, cryptocurrencies are the most liquid and real estate is the least.