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How Do I Choose the Best Liquid Assets?

Cash and banking accounts are common forms of liquid assets.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 August 2014
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Liquid assets are any types of assets that can be converted into cash with relatively little effort and in a short period of time. One school of thought holds that a true liquid asset can be converted to cash in 20 days or less, while others consider any asset that can be sold and generate cash in no more than a year to qualify. In order to choose liquid assets with an eye on holding and then selling them in a short period of time, it is crucial to properly assess the demand, future movement of the market, and how well the asset will hold and appreciate in value in the interim.

When choosing the best liquid assets, it is important to determine which of these assets is likely to be in demand at the point in time when you anticipate selling them. Ideally, an asset that is currently not trading at a high volume but is anticipated to do so in the future is a good option, since it can often be purchased at a lower price and then sold at a significantly higher price. Assets that have a strong history of being in demand in the past, especially during various types of market conditions, are worth considering for purchase.

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Also consider the potential of the liquid assets to hold onto their value for as long as you plan on maintaining them in your portfolio. This is important, since you do want to generate some type of return or dividends while holding the assets. In addition, liquid assets that hold their value are in an ideal position to respond favorably to varying market conditions and possibly command a higher sale price when you choose to trade them in the marketplace.

Take the time to assess the projected movement of the market and how that will impact your ability to sell the liquid assets at a profit. For example, if you plan on buying the assets in January and holding onto them until the end of the first quarter of the year, project the anticipated movement of the market up to that point in time. Based on the historical data you have about the asset, it is possible to relate that information to the price movement of the assets and determine if there is a good chance of selling them at a profit around that time. If the results of the projection are not favorable or do not indicate you can sell the liquid assets for the amount of profit you have in mind, it may be worth your while to consider a different asset.

As with any type of investing activity, there is some risk with liquid assets. For this reason, it is imperative that you understand prevailing market conditions, what you want to accomplish with the investment, and how the market will be when the time comes to sell. While there are no guarantees, considering the acquisition of the liquid assets from several different angles will help to minimize the risk.

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