Understanding investment liquidity

There are a lot of things you need to understand about investing. Investment liquidity is just one of those things. Liquidity or lack of liquidity can cause a lot of problems for you if you have not made the proper investments. This is because some people don't have the necessary funds to set aside for investing and they end up upside down in their investments. When you retire, the amount you pull out of your investments may be insufficient if you have short-term investments that didn't produce. You should always have a long-term approach when it comes to investing for your retirement. Liquidity basically refers to the accessibility of your investments. If you need to get cash out of your investments to pay for some unexpected medical expenses, you need to figure out which investments you can pull out in emergencies.

Your 401(k) or IRA account are not considered liquid assets because you have to be a certain age or you need to hold the account for a set number of years before you can access the money. The other disadvantage is that you need to file paperwork and it may take a few weeks before you see this money. Your savings account is considered a liquid asset because you have instant access to it when you need it. If you have any money market accounts, these are also considered liquid accounts. This is because the money can be transferred to your bank account when you need it.

You may have heard people refer to their stocks and how some of them may lack liquidity. This means the money you are investing in the stock may not make any money for you when you withdraw it. Normally the money you invest in a stock should be invested as a long-term approach and removing the money too soon will result in a loss of money. Moving your money too much is also considered liquidity because you aren't leaving the money in the account long enough to produce a decent return.

So with investment liquidity, you need to invest in the following:

• Money Market accounts


• Savings accounts


• Bonds


• Stocks


• Annuities

As stated previously, a money market account is one of the best liquid assets. You can pull out the money whenever you need because it is attached to a bank account. Money markets are safe investments and they are reliable. If you need money to pay for a down payment on your new home, for medical expenses, or other emergencies, a money market account is a wise investment.

Practically everyone has a savings account. A savings account is a great way to make a small return on your cash. Instead of placing money into your checking account, the savings account will compound some interest; it may not be much but its basically free money. If you don't have a savings account, open one and start putting aside a little money into it for emergencies or other situations that may arise.

Bonds are another liquid investment. You get a guaranteed return with a bond, even if it is just a small amount. They don't have much liquidity, but it does come with some liquidity.

Stocks of course are considered a liquid investment if you get the right ones. Stocks don't have a lot of liquidity, but you can access the money pretty quickly if you need it. If you want to make money, it is better to leave it in the stocks than to pull it out.

Finally, there are annuities. Annuity investments lack liquidity because they are designed to grow money without withdraws. Once you invest the money, it is pretty difficult to pull it out.