What is a Liquid Investment?

A liquid investment is any investment that can be easily converted into cash without having a significant impact on its value. In addition, it must be a simple matter to transfer ownership in the asset to another party. The sum total of these investments can be aggregated and compared to a company’s short-term liabilities to see if there are sufficient liquid investments on hand to pay off the liabilities, which is a key indicator of corporate liquidity .

Examples of Liquid Investments

Examples of liquid investments are cash, money market funds, and shares of publicly held companies that actively trade on an established stock exchange . In all cases, it is easy to transfer these assets to a third party, and there is a ready market for them.

Examples of Illiquid Investments

Investments are not considered to be liquid when it takes a significant amount of time to convert them into cash, or if the act of selling them reduces their value. For example, real estate can take a long time to sell, and so is not classified as a liquid investment. Or, the shares of a company that are thinly traded cannot be sold in bulk without causing a significant downward shift in their price, and so are also not considered to be liquid.

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