Liquidity refers to how easily and quickly you can sell an asset for cash at its current market value.
Gold has been prized for centuries as a store of value, a form of currency and a symbol of wealth. It can help diversify your portfolio by providing steady returns and stable value despite market fluctuations. In fact, many investors turn to gold to protect their wealth during economic uncertainty. But there’s another good reason to invest in gold that many overlook: its liquidity.
Gold is one of the most liquid investments available, meaning you can quickly and easily convert it to cash when you need it. In this article, we’ll explore what makes gold a liquid investment and why it should be a part of every investor’s portfolio.
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Why gold is a liquid investment (and what that means for investors)
Here’s why gold is a highly liquid asset worth investing in:
It’s easy to buy and sell
Liquidity refers to how easily and quickly you can sell an asset for cash at its current market value. For example, money in a bank account is highly liquid because you can withdraw it anytime. Real estate is illiquid because it can take a long time to list, accept an offer and close the deal.
Gold is considered a highly liquid investment because it’s easy to buy and sell. You can buy gold in a number of ways, including ETFs, IRAs and futures. And because gold spot prices are transparent and simple to understand, you don’t have to worry whether you’re getting the fair market price.
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It’s universally accepted
Gold has been universally accepted as a form of currency for thousands of years. It’s also an investable asset and is used in products from jewelry to electronics. It’s valuable in every country, making it easy to buy and sell globally.
Because of this, while the price of gold may fluctuate in the short term, there are always buyers in the market for it. Therefore, if you want to convert your gold to cash, you shouldn’t have any trouble doing so.
Gold is an asset you can hold in your hand. This gives investors a sense of security compared to cash assets (which can quickly become devalued) and stocks (which exist abstractly as shares or symbols on a screen).
Whether you hold physical gold like coins and bars or stocks backed by the precious metal, this tangibility makes gold reliably valuable and, therefore, a stabilizing element in any portfolio.
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There is only a finite amount of gold in the world, and once we’ve mined it all, we can’t mine anymore. This relative scarcity keeps gold prices steady compared to assets like cash, which governments can print more of at any time and is highly dependent on market forces. It also means gold is always in demand, which makes it easy to sell when you want to cash out your investment.
The bottom line
Gold is a worthwhile investment for many reasons, not the least of which is its liquidity. Whether you’re a seasoned investor or just starting out, adding gold to your portfolio can provide you with the stability, security, and diversification you need to succeed — as well as a ready source of cash whenever you need it.
MoneyWatch: Managing Your Money