As you navigate the world of investments, one term you’ll hear often is “liquidity.”
What does it mean for an investment to be “liquid”? What are the advantages of choosing a liquid investment over one that is not liquid?
Let’s take a closer look into liquid investments, how they work and why they offer perks for the savvy investor.
What Are Liquid Investments?
Liquid investments can be converted to cash quickly and easily. These types of assets are considered similar to cash itself because they can be sold with little impact on their value. There are a number of factors that affect whether or not an asset is considered liquid. First of all, it must be within an established market with a large number of interested buyers. This is important, as ownership must be able to be transferred easily. In order for an asset to be considered liquid, you should be able to sell it quickly, without affecting its price.
In other words - liquidity refers to how easy an investment is to buy and sell.
An investment is not liquid when it takes a significant amount of time to convert it to cash - or if selling the investment reduces its value. For example, traditional real estate is not considered a liquid investment, as it can take a long time to sell. Also, you can lose a significant amount of money in real estate if you are forced to sell at the wrong time.
Money in a checking or savings account is considered a liquid asset, as it can be withdrawn at any time.
However, cash isn’t the only liquid asset. There are other types of investments that are considered to be the equivalent to cash because of their liquidity:
Stocks and Marketable Securities: These types of investments are considered liquid because they can be converted to cash in a relatively short period of time.
U.S. Treasuries and Bonds: You can quickly convert these investments to cash through a broker or a bank. They are among the most liquid investments in the world.
Mutual Funds: These types of investments are considered liquid because investors can sell their shares at any time. You can sell and you’ll receive your money within days.
Money-Market Funds: This is a style of a mutual fund with investments that are low-yield and low-risk, such as municipal bonds. It is also a type of liquid investment.
There are many other types of liquid investments as well - these are just a few examples of the most common options.
What Are the Advantages of Liquid Investments?
Why is it such a good idea to have liquid investments in your portfolio? Here are some of the reasons why it makes financial sense:
Instant Redemption: Many types of liquid investments will offer you instant redemption. This means that when you place a redemption order online, you’ll immediately get the proceeds in your bank account.
Prepared for Emergency: Since liquid investments can be sold quickly at any time, this makes them handy for use as an emergency fund. The money can be immediately available if you need it - saving you from having to go into debt if something unexpected happens.
Flexibility: By having investments that are flexible and liquid, you’ll have a lot of flexibility and financial freedom when it comes to buying power. You can act quickly to get a great deal if one comes up. That’s something you might not be able to do if your investments are all tied up.
Lower Risk: Since liquid assets can be sold quickly, they often carry a lower risk during times of market uncertainty. In contrast, when the market is uncertain and you try to sell a non-liquid asset - you’ll often experience a steep loss.
More Diversity: Diversifying your investment portfolio is always a good idea. Having a wide range of different types of investments, including liquid and illiquid assets, is a great way to do that.
Boosting Your Financial Profile: If you are applying for a loan or a mortgage, the bank will take a look at your investment portfolio. If they see that you have a good balance of liquid assets this will be a benefit, as it shows you have savings you can access and are more likely to make your payments.
Why Partbnb Offers You Liquidity
Usually, real estate is not considered a liquid investment. However, Partbnb is a little bit different. Even though it is a real estate investment - it’s quite liquid thanks to the unique way it works.
When you create a Partbnb account, you’ll be able to buy “parts” of a property - rather than having to buy an entire property the old fashioned way. We divide each property into 10,000 parts, starting from $34 each. You can own as much or as little of the property as you want - it’s up to you. (If you don’t have the capital available to invest in a full property, this option will open doors for you.)
Your property is a vacation rental home in a gorgeous Caribbean location, which means it will be earning a rental income. You’ll be paid monthly dividends on that rental income - directly into your digital wallet.
So where does the liquidity part come in? After you own the property for at least 6 months, you’ll have the freedom to sell your parts on the platform to other investors. The investment is incredibly flexible and you can sell it anytime you like. Rather than only seeing capital gains on the final sale of a property, you can sell your share at any time whenever you want to access your capital gains.
This liquidity is a huge advantage of fractional property investment.
It means that your funds will never be tied up for a longer period of time. You can sell your share of the property at any point and receive a return that’s equal to the change in value the property has experienced.