Balancing amount of liquidity held

Balancing amount of liquidity held

The stock market, like life in general, overvalues glitz, glamour and grand promises.

It undervalues groundedness, consistency and conservatism.

People and companies which just do the work and deliver results are oftentimes overlooked.

Consequently, we have the phenomenon of low-risk, high-return investments.

But one risk that the market seems to price more accurately, or in other words, one risk that the market will reward investors for taking is liquidity risk.

That is the risk of you not being able to cash out any time you want without losing part of your capital.

Cash and bank deposits have little liquidity risk.

You can take your money out any time and in exactly the same amount that you put in - unless of course the bank has fallen into financial difficulties and is in danger of going kaput.

Then you may lose your deposits.

Otherwise, you are assured of getting back your money.

Purchase this article for republication.



Your daily good stuff - AsiaOne stories delivered straight to your inbox
By signing up, you agree to our Privacy policy and Terms and Conditions.