What is the difference between fixed and liquid investments?

Friday, May 29th, 2009

What is the difference between fixed and liquid investments?

Fixed and liquid investments explained

Investments can generate thousands of words from hundreds of bankingĀ “experts” from around the globe. It’s important to understand the difference between a fixed and liquid investment before you enter the more complex universe of “good” and “bad” investments.

Fixed investments have characteristics that differ from liquid investments, including the following tendencies:

  • They tend to be “hard” investments, as with real estate, machinery, etc. that are not intended nor typically have the ability to be converted to cash quickly.
  • They are typically long-term investments that are not easily converted to cash.
  • They are made for growth, stability, and safety over the long term.
  • There is no current plan to turn these investments into cash.

Unlike a fixed investment, a liquid investment has a more “current” purpose and has the ability be used quickly. Characteristics include:

  • The ability to be converted into cash almost immediately.
  • A lack of risk they will devalue during their time in your investment portfolio.
  • The ability to be used to make other investments as their liquidity makes them available to you on short notice.

Liquid investments typically “earn” lower interest, dividends, or profits than fixed investments, but their immediate availability to be turned into cash gives you the ability to make other investments. Fixed investment items are intended to be longer term items that you have decided should be left alone to appreciate and gain value.

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