Are Your Investments Liquid?

The word "investment" can put fear in even the solidest of savers. Visions of money locked away in deep dark lands of no return, or buried in intangible stocks stop us from testing the waters toward monetary growth.

Stop fretting, there's good news ahead. You don't have to tie up your money in order to invest it. There are alternatives which will allow you to have more liquidity with your funds, without suffering low returns on your investments either.

Liquid assets are those which are easily turned into cash. Hence, when you invest your cash, you maintain your ability to turn, or liquidate the investment back into cash easily.

Investments with more "liquidity" are Mutual Funds, Certificates of Deposit, Money Market Fund, and Savings Accounts.

Mutual Funds are funds allowing a group of investors to pool money together for investing. Each investor purchases shares of the mutual fund. The total investments of all the shareholders (investors) are then invested by a fund manager, typically into stocks and bonds. Each shareholder (investor) then reaps the benefits of the investments by sharing the profits (dividends.)

Mutual Funds offer management expertise (from the fund manager) and can be a great way to diversify investments. They are also easily cashed in or liquidated. As these are longer term investments with profit realized over time, drawback to withdrawing from a mutual fund quickly can be a loss of earnings.

Certificates of Deposit (CD) are insured, higher interest, fixed-term saving options. Terms can be from three months to five years. The term is the number of months or years you agree to leave the money in the Certificate of Deposit. Generally, the higher the term, the better the interest rate on the money invested.

Certificates of Deposit are great for gaining a higher return on money already in savings, yet keeping it liquid and accessible. Cashing out on a CD prior to its term end, though, may carry a penalty for early withdrawal.

Money Market Funds are similar to mutual funds, but instead of utilizing long term investments, Money Market Funds are invested in short term (less than one year) investments such as securities and U.S. Treasury Bills. Shares of Money Market Funds are typically purchased at $1 each.

Money Market Funds are highly liquid investments and generally do not carry a penalty for withdrawing early. Money Market checking accounts are also an option, allowing users to write up to three checks per month from the account without a penalty. On the down side, these are not secured accounts, but are considered to be secure due to their nature of investments, such as U.S. Treasury Bills.

Savings Accounts are generally low yield accounts, meaning the percent of return is low in comparison to the investment, but they are a safe bet for keeping your cash flow highly liquid. When large amounts, generally over two-thousand dollars, are available for savings, the bank or savings institution may offer a higher percentage of return on your savings investment.

Savings Accounts will keep your cash investments readily useable with little to no penalties for withdrawals. (Higher yield accounts may have a minimum balance requirement to maintain.)

While Mutual Funds, Certifcates of Deposit, Money Market Funds, and Savings Accounts are all solid investment opportunities, the rate of return may be a smaller amount than investing in less liquid options such as stocks, bonds, and collectibles. However, the trade-off and the important aspect of liquid investments is keeping your cash easily accessible, which is a wonderful way for those who are investment-shy to take the initial investment plunge.