An asset is liquid if you can quickly turn it into cash without risking its value. Cash in a savings account is liquid, since it's trivial to spend that money. Equity in a house is illiquid, since selling the house takes time, especially if you don't want to sell when the real estate market is down.

Stocks and bonds are more liquid than a house, since you can technically sell them at any time, but less liquid than cash, since you'll want to avoid selling at a loss.

Personal finance often involves trade-offs between liquidity and expected returns. You can sacrifice some liquidity by spending money from your savings account to buy index funds, for example, but the expected return on index funds is higher than the interest rate in your savings account.

You'll want some liquid money—your [emergency fund][], for example, should always be immediately accessible.

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