Different forms of savings and investments make our life easier during financial emergencies. Ensuring that our money is safeguarded comes easy with a proper understanding of the options available in the market. While the most easily understood types are liquid assets, non-liquid assets are also important to learn about. Let’s understand both these types of assets.
The different types of liquid assets are anything that you can convert into cash immediately. Ready conversion of these assets into cash is as good as cash in hand. These assets ensure that the value of the asset is the same as the buying value because the market does not see much fluctuation in these assets, ensuring little impact on their value. The following factors classify an asset as a liquid asset:
- Flourishing in an established market
- Several interested buyers
- Easily transferable ownership, if required
For example, the balance in any savings, current, or checking account is considered to be a liquid asset. It is legal tender, and you can use this money instantly when required. Legal tenders are any coins or currency recognized by law to be used to settle monetary obligations.
Popular liquid assets
Here are some of the different types of liquid assets:
- US treasuries
These are government debt securities issued by the U.S. Department of the Treasury. These help in managing cash as an alternative to taxes, and treasuries are 100% backed by the government as they are sold and paid by them.
- Mutual funds
These are a completely managed portfolio by a broker or a fund manager. They operate on a system wherein money from several investors is pooled in and invested in a variety of stocks and bonds. They can be redeemed as and when required.
- US bonds
They are the same as treasuries and are as good as cash in hand.
- Stocks and securities
These are very popular liquid assets as they are convertible into cash much more quickly as compared to other investments.
- Money market funds
A low-risk, low-yield investment option among the different types of liquid assets, money market funds are open-ended mutual funds.
Real estate and land buys are non-liquid assets since they take unusual and unguaranteed time to be encashed to raise funds. They cannot be sold quickly as the market may be volatile. For example, if you own a property and would like to sell it immediately to raise cash for an emergency in the family, you will need to access the market and approach an interested buyer. You will need to ensure that the market is good enough for you to earn more or at least as much as the property was bought for. This could take much more time than in the case of liquid assets.
An asset with an economic value left by a deceased person is often taxed. These assets are called an “estate” and are further classified into tangible and intangible assets. Tangible assets have a market value, and they can be easily stolen, lost, or damaged, making them susceptible to the risk of being lost. Intangible assets include goodwill, patents, trademarks and such, which are not physical assets and cannot be touched.