Looking for the best liquid funds to invest in? Wondering what that even means? Liquid assets are ones that you can exchange easily for something with relative value. For example, high-quality stocks are liquid assets; there are almost always plenty of buyers if you want to sell them.
The opposite is illiquid assets, which are very difficult to sell at a worthwhile price. If an investment is hard to convert into cash or costs a lot of money to do so, then that investment would be considered illiquid. If an investment losses significant value from being sold, then it too is deemed to be illiquid.
Knowing the best liquid funds to invest in will help you decide where to put your money and how long it may take to move those assets around.
Understanding the best liquid funds to invest in for easier movement out of the market
Cash and cash equivalents are the most liquid assets available. Not surprising as cash has its own inherent value, and it can be easily exchanged for goods or services.
Cash can lead to profits within a savings account due to interest, but with low interest rates, it could take a while to make any significant profit. Cash also has limitations. For instance, cash is more likely to lose value over time due to inflation than it is to increase in value.
Furthermore, it is essential to realize that the liquidity of investments can change. This includes the liquidity of specific securities or the liquidity of market sectors. Real estate is a good example here, as there are a lot of factors that make it easy or difficult to sell property. Investments can also be liquid or illiquid, depending on how they are being held within a portfolio.
Here’s a look at some of the best liquid funds to invest in that can lead to greater returns than money held in a low-interest savings account.
Know about these five of the best liquid funds and investments
The best way to build wealth over time is by holding investments that are somewhat liquid with a degree of illiquidity. If an investment could be sold at any time without any price change, then that investment will have a hard time generating any return. Assets that provide investment returns need some amount of illiquidity to have value in the market. That’s not to say that you need to take on added risk without anything to show for it. Still, you should recognize that illiquidity is essential to pursuing higher investment returns over more extended periods.
1. High-yield savings accounts: High-yield accounts may entail specific fees or a minimum amount balance, but they will provide a higher yield over time. Investors generally use these over short terms because, over longer periods of time, the yields can be impacted by inflation.
2. Money market funds: These types of bank deposits provide higher interest rates than basic savings accounts. Ultimately they are like mutual funds that specifically target highly liquid investments with short term lengths.
3. Bonds: There are an array of bonds that fit into this category, like corporate bonds, U.S. government bond funds, and municipal bonds. Government-backed bonds are safer than corporate bonds because the government guarantees they will be repaid. Government-backed bonds are considered highly liquid as they can be traded any day the stock market is open.
4. ETFs and mutual funds: ETFs are more liquid than mutual funds because investors can trade them directly during market hours, unlike mutual funds, which have to be sold by a fund manager or broker. That transaction can take between 24-48 hours to complete. Either way, both ETFs and mutual funds are more liquid than many other investments, and these securities often provide lower risk levels.
5. Investments in high-quality blue chip stocks: Stocks can be volatile, but if you invest in shares or funds of the top blue chip stocks, then you are investing in some of the safer stocks in the market. Many blue chips are considered safe due to a strong reputation and a history of success. Blue chips are commonly some of the best stocks in the market, making them easier to sell when desired.
What are the best liquid funds to invest in for your temperament and investing style?