What is a liquid asset?

A liquid asset is defined as a financial asset that can be quickly and easily converted into cash without a significant loss in value. This characteristic is essential for managing financial liquidity, as individuals and businesses often require ready access to cash for immediate needs, investments, or unforeseen expenses. Examples of liquid assets include cash itself, government bonds, and stocks that can be sold quickly on the stock market.

The key aspect of a liquid asset is its ability to be converted to cash promptly while maintaining its value. This is crucial in personal financial planning, as having a portion of your assets in liquid form enables you to react quickly to financial opportunities or emergencies.