What is a liquid asset?

A liquid asset is cash on hand or an asset that can be easily converted to cash. In terms of liquidity, cash is supreme since cash as legal tender is the ultimate goal. Assets can then be converted to cash in a short time are similar to cash itself because the asset holder can quickly and easily get cash in a transaction exchange.

What is considered a non-liquid asset?

Land, real estate investments, equipment, and machinery are considered types of non-liquid assets because they take time to convert to cash, costs can be incurred to convert them to cash, and they may not convert to cash at all. Examples of liquid assets held by both individuals and businesses include:

Why do investors consider illiquid assets?

Overall, in considering illiquid assets, investors usually apply some type of liquidity premium which requires a higher yield and return for the risk of liquidity. Some companies or entities may face requirements on the value of liquid assets. This restriction is to ensure the short-term health of the company and protection of its clients.