Liquidity is a finance term that represents how easy an asset can be bought or sold. A fluid, or liquid, can flow easily. A pile of rock can’t. Stocks are high liquidity assets. With a computer or a mobile phone, a stock can be traded in just several minutes, if not seconds. A house may take months to complete the transaction. That’s why houses are often considered as low liquidity. Of course, cash is always king, as they have the highest liquidity.

One may ask: “Should I invest in low or high liquidity assets?”. It depends on the investor’s current position. If it’s a short term investment, and/or easy exit is expected, then high liquidity assets like stocks, bonds are prefered.

One common misconception is stocks have higher risks than houses. Liquidity may have some correlations with volacity, and it’s true that houses are less volatile than stocks. However, one should also factor the low liquidity of houses. In case the market crashes, it’s much harder to sell a house than a stock. You have more time to react doesn’t mean the reaction your reactions are guaranteed to succeed.