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Why It Is Better To Convert Your Liquid Assets Into Less Liquid Investments

by gbaf
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Liquid assets can be defined as any financial instrument that has the ability to be converted into cash. Basically, liquid assets are simply money or any other item that has the power to be converted into money. Liquid assets are commonly perceived to be almost identical to money, since they do not lose monetary value when simply sold. However, it must also be kept in mind that liquid assets differ from money in many ways. These include but are not limited to savings accounts, mutual funds and stocks. In fact, virtually all financial instruments fall under the category of liquid assets.

Savings Accounts. Savings accounts are considered to be the most liquid assets, simply because they are easily liquidated and tend to have a very long duration. Savings accounts are great for liquidating short-term debt obligations. When an investor takes out a long-term loan, however, it is typically considered unprofitable, as the amount of the loan increases over time. Savings accounts are used for this purpose, and a good portion of the world’s savings is in savings accounts.

Mutual Funds. Mutual funds are typically managed by a professional investment counselor. A common strategy for investors with mutual funds is to take out a series of different investments to convert them into cash. These investments may be invested in bonds, stocks, or other financial instruments. The overall objective of a mutual fund is to increase the overall value of the fund.

Stocks. Most equity investors, as well as many real estate and commercial investors, own some stocks. Stocks are considered liquid assets because most investors do not want to sell their stocks. As such, the stocks usually remain in the investors control until they mature and can be sold for cash.

Futures and Forex Trading. Many investors participate in futures and forex trading. This involves buying contracts for specific dates in the future. For example, a futures investor could buy a contract for gas in a few months from today. The gas price may remain constant for a period of time before it changes, so the value of the gas will stay constant, making these types of transactions very liquid.

Real Estate and Commercial Real Estate Investments. These are some of the best liquid investments. Properties that have a long-term lease and a reasonable rent-back option are good examples of this type of investment. Investors can profit from real estate by using their money to pay the long-term lease fee and the discounted rent amount. In addition to profit, investors will also avoid paying capital gains taxes on the amount of income that they earned. This ensures that the investor retains more of their profit.

Several months. The value of any assets does not change significantly over a few months. However, an investor will gain access to a lump sum if they can sell the property within a few months. This is one of the best ways of generating cash flow. Selling a property within a few months is often easier than waiting several months to get additional payments due.

All of the cash quickly mentioned above can be converted into other liquid assets. For example, if you own stock certificates, you can convert them into shares of another stock that has a higher value. You can also convert short-term loans into preferred stocks. As you can see, there are numerous options when you convert your assets into liquid assets.

No tax. Some investments may provide a tax advantage, but it is unlikely that they would provide one for investing in liquid assets. For example, if you have a savings account that is currently tax-free, you can deposit the money in a checking account and let it earn interest for several months. You will not have to pay any tax on the interest. However, if you want to convert the cash into long-term debt, you will have to pay tax on the interest during the period of time that the account earns interest. For most investors, this is a preferable option because it reduces the amount of taxes that they pay on their return.

Easy liquidation. One of the advantages of converting liquid assets into liquid assets is that it is often easier to liquidate them quickly than non-liquid assets. You simply have to give the company permission to sell your assets. If they are unable to sell them quickly, you may still be able to get most, if not all, of your cash back.

Less liquid. Most investment accounts are very liquid. This means that the rate of exchange between liquid assets and liquid accounts is fast. However, with savings accounts, the rate of exchange tends to be slower. Because of this slower rate of exchange, it may be more difficult to sell your assets quickly compared to other types of investment accounts.

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