What is the difference between liquid and illiquid assets?

The distinction between liquid and illiquid assets is fundamentally based on the ease and speed of conversion to cash. Liquid assets are those that can be quickly turned into cash without significant loss of value. Common examples of liquid assets include cash, checking and savings accounts, stocks, and easily tradable bonds. Such assets are essential for meeting immediate financial obligations or taking advantage of investment opportunities.

In contrast, illiquid assets are not easily converted into cash, often requiring a longer time to sell or potentially facing a reduction in value because of the time it takes to find a buyer. Examples of illiquid assets include real estate, collectibles, and certain types of investments like private equity or long-term bonds.

This understanding of liquid versus illiquid assets highlights the importance of liquidity in personal finance and investment strategy, especially regarding how quickly an individual can access cash when needed. Therefore, the assertion that liquid assets can be quickly converted to cash while illiquid assets cannot accurately captures the key characteristics of these two categories.