The lowdown on liquidity

The term liquidity refers to how long and at
what cost it takes to convert an investment into
cash. The money in your wallet is considered
perfectly liquid — it’s already cash.
Suppose that you invested money in a handful
of stocks. Although you can’t easily sell these
stocks on a Saturday night, you can sell most
stocks quickly through a broker for a nominal
fee any day that the financial markets are open
(normal working days). You pay a higher percentage to sell your stocks if you use a highcost broker or if you have a small amount of
stock to sell.
Real estate is generally much less liquid than
stock. Preparing your property for sale takes
time, and if you want to get fair market value for
your property, finding a buyer may take weeks

or months. Selling costs (agent commissions,
fix-up expenses, and closing costs) can easily
approach 10 percent of the home’s value.
A privately run small business is among the
least liquid of the better growth investments
that you can make. Selling such a business typically takes longer than selling most real estate.
So that you’re not forced to sell one of your
investments that you intend to hold for longterm purposes, keep an emergency reserve of
three to six months’ worth of living expenses
in a money market account. Also consider
investing some money in highly rated bonds, which pay higher than money
market yields without the high risk or volatility
that comes with the stock market.