Liquid investments allow you to build your wealth passively and then liquidate that asset whenever you need it. Unlike real estate investments, which take time to liquidate, liquid investments are pursued to have easy access to funds when necessary.
If you want to build an emergency fund or save for a car or a down payment on a new house, liquid investments can be perfect. With the right liquid investments, you’ll be able to safely build your wealth, and have easy access to that, even during emergencies.
What Are Liquid Investments?
Liquid investments are financial assets that can be turned into cash, or cash equivalents, with low impact. This means that the value of the asset doesn’t change a great deal when you liquidate it. It also shouldn’t require energy or expenditure on your part to liquidate your investments.
Liquid investments aim to diversify your financial portfolio without tying up all your money in long-term investments. A real estate investment, for example, can sometimes take months or even years to liquidate.
Liquid investments can provide immediate access to cash or take no more than a few days to liquidate. Say you’re looking for a new house and find the perfect one during a recent open house event. You need to pay the down payment as soon as possible before a third-party steps in to purchase the house. Having liquid investments on hand provides you with the funds you need at a moment’s notice.
This can also be important should you need money in an emergency. An example would be a sudden medical emergency that’s not covered under your medical insurance.
Eight Best Types of Liquid Investments
Now that you know what liquid investments are and why they’re important, let’s look at the best types of liquor investments:
A Checking Account that Bears Interest
A checking account isn’t often seen as a good investment opportunity. However, some banks provide low interest rates on checking accounts. This allows you to passively make income, which can then be accessed at a moment’s notice. A checking account that bears interest is a great liquid investment that allows you to grow your money at the same time.
A good savings account is a low-risk liquid investment that provides you with near immediate access to your money. Should you opt for a high-yield savings account, then you can grow your money while you save.
Money Market Account
A money market account combines the best parts of checking and a savings account. You can even get access to ATM withdrawal privileges and get a usable cheque book with this liquid investment.
In a mutual fund, different people buy shares of an investment. Money from the different investors is pooled and then invested in financial securities by a broker or a fund manager. The best part about mutual funds is that you can liquidate your investment any time you like and then receive the money within a few days.
Certificates of Deposit
Certificates of deposit, especially those with no penalties, allow you to access funds you need, whenever you need them. CDs are usually seen as liquid investments since it’s tied up for a fixed term. You have to pay a large penalty to obtain your money ahead of time.
However, with a no-penalty certificate of deposit, you can access your investment whenever you need it, without having to pay a large penalty.
Bonds are investment opportunities that the government or a corporation provides when they need funds. Say the government needs funds; they can issue a bond at this time. The government secures the funds they need through the investors who buy the bonds. These investments also gather interest.
In return, the government gets time to pay back the loan to the investor. As a result, government bonds are usually considered safe liquid investments, while corporate bonds are riskier.
You can also consider investing in stocks as a way to build your liquid investments. However, these tend to be volatile investments. If you sell your stocks at the wrong time, you can also risk incurring a loss. When done right, however, stocks are great liquid investments that provide food return on capital.
Exchange Traded Funds
These are volatile investments where you invest in an index of stocks instead of a single company. ETFs are passively managed funds as well, meaning that after your initial investment, you don’t have to actively manage your investments.
ETFs are great liquid investments in that you can access your funds whenever you need them.
Liquid investments provide easy access to funds, while a low allows you to diversify your financial portfolio. Whether you want to build an emergency fund or are saving for a new car or a down payment on the house, turn to these eight types of liquid investments to build your wealth.