Liquid assets is a term that sounds more confusing than it really is. A liquid asset is one that can move fluidly from a savings account or investment portfolio into cold, hard cash. They are a vital part of a financial profile and are meant to be accessed easily. Sometimes, little unforeseen incidents require the use of various liquid assets. They come in several varieties, including the following types:
1. Cash
Cash is the most common form of liquid assets as it has high credibility. Similarly, cash-equivalent instruments that can be exchanged for cash are also considered as liquid assets.
2. Marketable equity securities
Marketable securities are financial instruments that can be instantly sold through the stock exchange or the bond exchange. These securities consist of common stocks and preferred stocks. These can be traded on any verified stock exchange for quoted prices in the market.
3. Marketable debt securities
Debt securities are any short-term bond issued by a public company but held by another entity. These securities are held by companies instead of cash, which highlights the need for an established secondary market. Marketable debt securities are considered as current assets until a loss or gain is realized after the sale of the debt security.
4. Money market assets
As the name suggests, a money market fund is a type of mutual fund, which invests only in liquid instruments such as cash-equivalent securities, high credit rating debt-based securities, and cash. These assets are generally for the short-term and their maturity period is less than 13 months.
5. Exchange-traded funds (ETFs)
An ETF is a kind of security that involves a collection of different categories of securities. It can be labeled as marketable security and is a combination of different forms of investments like commodities, bonds, stocks, or a mixture of various types of investments. An ETF can make investments in various industry sectors or use different kinds of strategies. ETFs are listed on stock exchanges; they trade throughout the day and their prices fluctuate as they are purchased and sold during the day.
6. Merchandise inventory
Every asset that a company holds has some liquidity value in the market. Merchandise inventory is one such asset, which can be converted into liquid assets only once it is sold to the customer. However, they are not as feasible as the other options and should be considered as the last choice.
7. Accounts receivable
Accounts receivable is the amount owed to a company, which provides goods or/and services on credit. Another term, which is interchangeably used for accounts receivable is trade receivable.
Additionally, different types of liquid assets comprise mutual funds and U.S treasuries that mature within a year. Investing in different types of liquid assets is ideal for people who regularly need liquid cash. If you are one of these people, it is recommended to consult a financial expert before investing in such assets to build your portfolio.