What is liquidity and why should you care about it? If you're thinking about what to invest in, the liquidity of an investment will help you determine how quickly and easily you can convert your investments back into cash. In this article you'll learn everything essential – from calculating liquidity to the indicators that will make your investment decision-making easier.
What is liquidity and why does it matter?
The liquidity of an investment is an indicator that tells us how quickly and efficiently you can convert it into cash, and that without a significant loss of value. In other words: When you need money, liquid assets allow you to obtain it easily, relatively quickly, and without major complications, whereas less liquid assets do not.
Liquidity is one of the most important factors that every investor should consider when deciding where to put their money. It is not for nothing that it is part of the magic triangle of investing.
For individual types of investments, this indicator differs significantly. In principle, we distinguish between high, medium, and low liquidity, as follows:
- High liquidity: Cash in a (savings) account, mutual funds, shares of large companies; you can withdraw or sell them at any time.
- Medium liquidity: Bonds, real estate (when renting it out)
- Low liquidity: Works of art, collectibles, real estate (when selling it); a sale can take weeks to months and requires higher costs.
Tip: Do you want to buy a property as an investment? Read these two articles of ours and avoid the typical mistakes that could cost you dearly: Investment apartments and How to proceed when buying a property.
Why is liquidity important?
- Flexibility: A liquid investment allows you to react quickly to unexpected expenses or opportunities. If you need money quickly, you can sell the investment without unnecessary delays.
- Diversification: Liquid investments allow you to diversify your portfolio more easily, and thereby reduce overall risk.
- A calmer sleep: Knowing that you can cash in your investments at any time can give you greater peace of mind and certainty.
Equally important, however, is that you have your investment goals defined, know your risk tolerance, and have put together a financial plan. And of course, that you don't forget about investment diversification. Based on that, you can choose the right level of liquidity for each individual investment, the one just right for you.
How does liquidity work for micro-investments in real estate at InvestBay?
The liquidity of micro-investments in real estate with InvestBay ranks as medium. You receive your share of the capital return after the property is sold, which is usually in 5–10 years (you can always transparently see this figure in the offer description, along with the estimated annual return). What can reassure you, however, is the regular rental income, which is paid out monthly or quarterly.
Thanks to crowd-owning, the property's management and its subsequent sale are handled by our professional team, which takes care of the sale at the optimal time. This provides you, as investors, with the advantages of stability and appreciation.
During 2025 we'll also launch a secondary market on InvestBay, that is, the option to sell shares among one another. If, however, you'd be interested in this feature even now, get in touch with us. We can arrange this feature manually.
Tip: Use our investment calculator and calculate your return in an instant.
Liquidity and return: How to connect them?
Investors often face a dilemma. To have certainty and a highly liquid asset with the promise of a lower return? Or to go in the direction of a higher return, but lower liquidity?
It is true that high liquidity usually means a lower return, while less liquid assets can be more profitable. But this isn't always the case, and that is precisely why it's important to educate yourself in this area and to read information about an investment thoroughly.
Reading tip: How to invest step by step? Read our article on the basics of investing.
Tips for choosing investments with optimal liquidity, or What to invest in?
- Diversify your portfolio: Combine assets with different levels of liquidity.
- Evaluate liquidity indicators
- Work with professionals: InvestBay handles the management and strategic planning of liquidity.
Invest with InvestBay
Liquidity is one of the key factors of successful investing. With InvestBay you gain not only an attractive return but also a professional approach. Start today and choose an investment that will suit you – take a look at our investment offering.
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