Moondog
Term

Liquidity

Also: liquid, illiquidity

How quickly an asset can be turned into cash without materially moving its price.

Cash and listed equities are highly liquid; private equity and real estate are not. A liquidity floor — the share of the portfolio that must remain accessible within a set horizon — is a common policy constraint.

Liquidity tends to be abundant when it is not needed and scarce when it is. The time to fix a liquidity floor is in calm markets, written into the policy, not mid-crisis, when raising cash means selling good assets cheaply.

Related terms

Maximum Drawdown The largest peak-to-trough fall in a portfolio's value over a period. Modern portfolio theory The framework for building portfolios by balancing risk and return through diversification. Monte Carlo simulation A technique that models thousands of possible outcomes to estimate a range of results. Private credit Lending to companies outside the public bond markets. Private equity Investment in companies that are not listed on a public exchange. Private Markets Investments not traded on public exchanges, such as private equity and credit.

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