#Liquidity101 Have you heard of the term #liquidity before but are unsure what it exactly means? 🤔
Simply put, liquidity is how easily an asset can be converted into cash without significantly affecting its price.
Imagine you have a large piece of land. It may have high value, but converting it to cash takes time and effort. This piece is less liquid than, for example, cash in your bank account or shares of a large company that are actively traded in the market.
Why is liquidity important?
* For individuals: It helps you meet unexpected financial needs.
* For businesses: It ensures their ability to pay bills and employee salaries.
* For financial markets: It allows investors to buy and sell easily, making markets more efficient.
High liquidity assets include cash, savings accounts, and heavily traded stocks. Low liquidity assets include real estate, art collectibles, and some types of private investments.
Understanding liquidity is the cornerstone of financial and investment planning!
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