Not every asset you own can be categorized as a liquid asset — some will be non-liquid assets, also called illiquid assets. In general, non-liquid assets can’t be quickly converted to cash like liquid assets can be without losing value. While non-liquid assets can be sold, they can depreciate in value if sold too soon. Non-liquid assets are more long-term investments.
Some common examples of non-liquid assets include:
- Land and real estate
- Musical instruments
- Private equity
- Stock options
These types of assets can take months or even years to sell because you’ll often have to find someone to transfer ownership to and come to an agreement on an offer. Take real estate investments, for example — arguably one of the most challenging assets to liquidate. Selling a real estate property could take a long time, and accepting the earliest offer on a property might result in a significant financial loss for the seller.
As a general rule, the more liquid an asset is, the less its value will increase over time. So although a real estate property is highly illiquid, it will increase in purchasing power over time and can help you build long-term wealth. A completely liquid asset, like cash, may fall victim to inflation. To save for your long-term financial goals, you should aim to have liquid and non-liquid assets at your disposal.