During emergencies, investors may need to be a little liquid, meaning they can convert investments to cash. Learn about which types of investments may be more liquid than others.
Liquidity measures the accessibility of your money, or how easily your investments can be converted into cash. If you need invested money during an emergency, lack of liquidity can be a concern. One of the benefits of holding money in a savings account is that your assets are readily liquid. With a CD, you can always withdraw the amount you invested, though if you do so before maturity you may lose out on some or all of the interest you expected to earn.
However, investing in securities doesn't necessarily mean you're giving up liquidity. If trading volume is high, you should be able to convert your investments to cash fairly easily by selling your stocks or bonds in the secondary market. The risk, though, is that you may have to sell for less than the amount you invested if the price of the individual security or the market as a whole has dropped.