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Liquidity refers to how easily an asset can be converted into cash without losing much of its value.
In Depth
Liquidity refers to how easily an asset can be converted into cash without losing much of its value. Cash itself is the most liquid asset. Savings accounts and checking accounts are also very liquid. Investments like stocks can be liquid, but selling them quickly might mean accepting a lower price. Real estate, on the other hand, is generally considered illiquid because it takes time to sell.
Example
Having a healthy emergency fund in a savings account provides good liquidity for unexpected expenses.