In this article, we’re discussing non-liquid assets, which refer to assets that are not easily converted into cash by the owner.
Not surprisingly, the question about non-liquid and liquid assets arise when discussing wealth, private banking, and international investments.
With this in mind, this article is part of our free series on banking in the best jurisdictions available, including a detailed step-by-step guide to opening a private bank account.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
Non-Liquid Assets
Non-liquid assets include various types of real estate properties, restricted investments, collectibles and artwork, and long-term bonds. In short, if you face difficulty converting assets into cash in a short period of time without dramatically reducing the price of the asset, then the assets are considered non-liquid.
Asset liquidity becomes an important consideration for individuals considering various financing options. This is true when financing is tied to illiquid collateral. In other words, the banks are given a legal right to take possession of certain assets in the event of a default.
For this reason, individuals engaged in leveraging assets of various liquidity profiles, often use asset liquidity management (ALM) in order to correctly manage financial risks and attempt to match the assets and liabilities in an investment strategy.
To help further illustrate non-liquid assets, here are two common examples.
Real Estate Investments
Real estate investments are considered non-liquid assets because it takes a long time horizon to sell a property. Likewise, real estate has limited marketability because it must be sold at the physical location where it sits.
Additionally, further delays can be caused due to financing terms, mortgage delays, and more. One final consideration is that the selling costs can also negatively impact the overall value that the owner can receive from the sale of the property.
Private Financial Market Investments
Private financial market investments are considered non-liquid assets because they are not easily convertible, tend to have lock-up periods, lack a standardized measure of the value, and have more limited marketability than public investments.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into what non liquid assets are. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
Are Stocks Liquid Assets?
Yes, stocks are liquid assets. The reason that stocks are considered liquid assets is because they can quickly be converted into cash. This is also true for other securities, like bonds and ETFs.
Is a Car a Liquid Asset?
No, a car is not a liquid asset, instead it is considered a non-liquid asset. This is because selling a car usually requires a medium term process. Alternatively, if you decide to sell a car in the short term, it often requires a markdown of the price that negatively impacts the cash received in exchange for the car.
Is a 401K a Liquid Asset?
No, a 401k is not a liquid asset, instead it is considered a non-liquid asset. This is because a 401k cannot be converted into cash without negatively impacting the underlying value of the funds held in the account. For this reason, a 401k is considered a non-liquid asset.
Is Jewelry a Non-Liquid Asset?
Yes, jewelry is a non-liquid asset. This is because jewelry either requires a medium to long-term sales process or requires the owner to reduce the price of the jewelry in order to secure a short term sale.
Are Vehicles Non-Liquid Assets?
Yes, vehicles are non-liquid assets. This is because the process to sell a vehicle is typically medium term. On the other hand, short term vehicle sales often require the owner of the vehicle to reduce the price significantly to secure a quick exchange for cash.
Is a Credit Card a Non-Liquid Asset?
No, a credit card is not a non-liquid asset. In fact, a credit card is not considered an asset at all. Instead, any balance held on a credit card is a liability that an individual owes to the lender. Likewise, an available credit limit represents a liability that, if used, would be owed. This is in direct contrast to the value of an asset, which is convertible to cash and is not owed to anyone.
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