Liquidity

Liquidity refers to how quickly and easily an asset can be converted to cash without significantly affecting its value.

Levels of Liquidity

Immediate (Cash): Available instantly

• Checking accounts
• Savings accounts
• Money market accounts

Short-term (1-30 days): Available within weeks

• Cash positions in brokerage accounts
• Short-term CDs (if callable or redeemable without early withdrawal penalties)
• High-yield savings with withdrawal restrictions

Medium-term (1-3 months): Require some waiting period

• Longer-term CDs
• Brokerage accounts with conservative holdings like short-term bond ETFs (note: value may fluctuate)

Treasury Securities (varied liquidity):

• Treasury bills (T-bills): 4-52 weeks
• Treasury notes (T-notes): 2-10 years
• Treasury bonds (T-bonds): 10-30 years

Trade-offs

Higher liquidity typically means:

• Lower returns
• Easy access for emergencies
• Less earning potential

Lower liquidity often provides:

• Higher yields
• Better long-term growth
• Risk of not accessing funds when needed immediately