In times of uncertainty, the number one asset you want is cash. Liquidity describes your ability to easily withdraw funds from an account or quickly convert another asset to cash.
Liquidity is important for both people and companies. As COVID-19 has proved, disaster can strike anytime. Having cash on hand allows you to cover your bills and other essential expenses even if you lose your job or your income gets held up.
Businesses need cash to keep the lights on and pay employees and lenders regardless of what’s happening in the economy. United Airlines, for instance, has been burning $40 million a day in cash—despite the fact that global air travel is down 70% from its usual levels. The company is issuing stock and tapping new loans in an effort to raise its total cash position to $18 billion by September.
Although cash is the easiest asset to use for your expenses, liquid assets include anything that can quickly be converted to cash, including:
Things like antique jewelry, fine wines and real estate are not liquid, because they take longer to appraise and sell. Neither do investments like hedge funds and private equity, which can tie up your money for months if not years.