![]() ![]() MoneyMade is not a registered broker-dealer or investment adviser. If you're investing money for returns and can afford to lose it all, you can opt for assets that are. If you won't need the money for 10+ years, you can opt for assets that are. If you'll need the money in 5 to 10 years, you can opt for assets that are. ![]() ![]() If you'll need the money in 1 to 5 years, you want assets that are. If you have an immediate need for the money, you want assets that are. On the flip side, if you're retired and your entire net worth is in stocks, you're likely taking on too much risk given that you have an immediate need for those funds. If your entire net worth is in a savings account, you have a high degree of liquidity, but low returns mean you're likely losing money to inflation. Even more important is figuring out how to balance all three of these factors. Typically, if an asset is highly liquid, it either offers low returns (a savings account, for example) or involves a higher degree of risk (stocks, for example).Ĭreating a healthy portfolio isn't just about making sure you have a good balance of liquid vs fixed assets. The ideal asset would be one that's highly liquid, low risk, and offers high returns-but these assets are virtually non-existent. The holy trinity of investing concepts is liquidity, risk, and return. If you're investing for retirement and don't plan to retire for 20 years, you don't have to worry so much about liquidity. For example, if you're investing a down payment for a house that you plan to purchase in three years, you'll want to keep that money in a fairly liquid asset. From there, you can manage your liquidity accordingly. However, if your job or income are unstable, or if your lifestyle involves facing lots of unexpected expenses, you might want to incorporate a higher degree of liquidity into your portfolio.īeyond deciding how much cash you need to keep for unexpected emergencies, you'll need to identify what your goals are for your investments and the time horizon for each of those goals. A typical emergency fund strategy is to keep at least three to six months' worth of living expenses in a high-interest savings account. The first factor determines how much of your net worth should be kept in cash for emergencies.
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