What qualifies as a liquid asset?

Liquid assets are those that can be quickly and easily converted into cash without a significant loss in value. Stocks and bonds fall into this category as they can typically be sold on financial markets quickly. When an investor needs cash, they can sell shares or bonds almost immediately during market hours, making them highly liquid.

In contrast, real estate investments, while they may hold significant value, cannot be easily converted to cash without a lengthy selling process, making them illiquid. Long-term fixed deposits often have penalties for early withdrawal and are not readily cashed in, thus lacking liquidity. Artwork and collectibles may carry value, but selling them often requires time to find the right buyer and may also involve a significant drop in price depending on market demand, further diminishing their liquidity.