What is Liquidity? (Explain Like I’m 5)
Imagine you have a toy that you want to sell. Liquidity is like how easy it is to sell that toy and get money for it.
If lots of people want to buy your toy, it’s very liquid because you can sell it quickly. But if nobody wants to buy it, it’s not very liquid because it’s hard to sell.
Being a busy investor, liquidity matters because you want to be able to buy and sell your investments easily. Assets like stocks and bonds that are highly traded are usually very liquid. They can be quickly turned into cash when you need it.
Imagine you have a toy that you want to sell. Liquidity is like how easy it is to sell that toy and get money for it.
When you make your regular monthly investments, it’s important to consider liquidity. Having liquid assets helps you stay flexible and make changes to your portfolio if needed.
Remember, not all assets are equally liquid. Some investments may take more time to sell or may not have as many buyers. It’s important to find a balance between liquidity and other factors like risk and potential returns.
So, think of liquidity as how easy it is to sell your toy or investments. The more liquid they are, the easier it is to turn them into cash if you want to.
Investor Takeaway
Liquidity matters in the mentioned investment strategy because it ensures that you can easily buy and sell your investments. By including liquid assets like stocks and bonds in your portfolio, you have the flexibility to make changes or access funds when needed. This way, you can navigate the market with ease and potentially take advantage of investment opportunities or manage financial obligations during the long-term holding period of 5+ years.
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