What does "liquid assets" refer to?

"Liquid assets" refers to assets that can be quickly converted into cash without significant loss of value. This category typically includes cash itself, bank deposits, marketable securities, and other financial instruments that can be easily sold or accessed. The importance of liquid assets lies in their ability to provide immediate cash flow, which is crucial for covering short-term obligations or emergencies.

Investments in real estate, for instance, do not fall under liquid assets, as they usually require time to sell and may not convert to cash quickly depending on market conditions. Similarly, physical items that possess intrinsic value, such as collectibles or art, might need time to find a buyer, and thus are not considered liquid assets. Long-term investment accounts, while they may eventually provide cash, typically involve penalties or time delays when withdrawing funds, further reinforcing the distinction from liquid assets.