Introduction
Liquidity is a crucial yet often overlooked aspect of financial decision-making. It refers to the ease with which an asset can be converted into cash without affecting its price.
By definition, cash in hand is perfectly liquid. Technically, money in a savings account is not perfectly liquid as you still need to go to the bank to withdraw or transfer it to another account (which could incur a transaction cost too), but given the ease of online banking these days, cash in the bank is also considered perfectly liquid for our purposes.
In the world of investing, liquidity often takes a backseat to other factors such as potential returns, risk levels, and diversification. However, understanding liquidity and its implications can help investors make better informed decisions and optimise your investment portfolios to suit your needs and personal circumstances. This is why liquidity is the second topic for this guide!
Understanding Liquidity
The liquidity of an asset is also dete...
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