What is Liquidity?
When investors set money aside for their future goals, one important concept to understand is liquidity.
Liquidity refers to how quickly and easily an investment can be converted into cash without losing much of its value. In simple terms, it describes how accessible your money is once it has been invested.
What Does Liquidity Mean Within an Investment Portfolio?
An investment is considered liquid when it can be readily converted into cash with little to no loss in value. In essence, the investor can sell the asset swiftly, without significant delays or the need to accept a substantial discount. Common examples of highly liquid assets include publicly traded shares of large corporations, mutual funds, and exchange-traded funds (ETFs).
In contrast, less liquid investments typically require more time, effort, and compromise to sell. These assets may involve prolonged search for a buyer or the acceptance of a reduced price to complete the transaction. Real estate, collectibles, and private equity holdings are prime examples of illiquid investments, as they can be difficult to offload quickly. In some instances, selling such assets may take several months—or even years.
Why Liquidity Matters
Liquidity plays a vital role in an investor’s financial plan:
- Access to funds – Liquid investments can be sold quickly, with minimal wait time to receive cash.
- Price stability – Assets that trade frequently tend to have more stable and transparent prices.
- Flexibility – Liquid holdings give investors the ability to make timely changes without being locked into a position.
How Embark Uses Liquidity to Benefit Customers
Embark’s RESP portfolios are primarily invested in ETFs. Because ETFs trade on stock exchanges, they are highly liquid and can be bought or sold daily.
For our customers, this means that Embark can easily adjust or sell investments if money needs to be withdrawn (for example, when paying for tuition) or if the investment mix needs to be changed as the child gets closer to using the funds. Liquidity ensures RESP savings aren’t tied up in hard-to-sell assets, providing families with quick access to funds needed for post-secondary education.
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Balancing Liquidity
While investing solely in cash ensures maximum liquidity, it typically yields minimal returns. Conversely, focusing exclusively on illiquid assets—such as real estate—can limit access to funds when they’re needed most. Embark takes a balanced approach, leveraging liquid exchange-traded funds (ETFs) to provide both flexibility and growth. This strategy allows investors to maintain ready access to their capital while still participating in the long-term potential of the markets.
Key Takeaway
Liquidity refers to how easily and quickly an investment can be converted into cash without causing a significant loss in its value. While virtually any asset can be sold under the right conditions, not all sales are equal—some may take considerable time, effort, or involve steep price reductions. What distinguishes liquid investments is their ability to be sold both efficiently and at or near their current market value, often within a very short time frame. Therefore, understanding an asset’s liquidity is crucial when constructing a well-diversified and responsive investment strategy.
By focusing on liquid vehicles such as ETFs, Embark ensures our customers have both flexibility and access to their RESP savings—while keeping their money invested for growth.
Senior Analyst
Sandeep Suresh is a Senior Analyst, Investments at Embark. He holds an MBA in Finance and is currently pursuing his CFA Charter. In his free time, he enjoys breaking down complex financial data into clear and digestible insights.
