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4 ways to ensure liquidity in ones portfolio
Share market investments offer an investor three different characteristics: risk, reward, and liquidity. Of these three liquidity is the degree to which one can sell an asset on the share market with ease. Even the best mutual funds to invest in may not offer the benefit of liquidity. The higher the asset’s liquidity, the less stuck you are to it. In case, it underperforms, you have liquidity on your side to ensure you can easily get rid of it. Hence, liquidity is one of those factors that investors try to increase within their portfolio. Here are four ways to guarantee liquidity in your portfolio.
1. Seek out opportunities to reduce expenses
When it comes to portfolio management, the first step for an investor is to be wary of their expenses. Assess and tally any potential expenses you have to make, whether it be your monthly living expenses, your business’ monthly operational costs, and taxes in both these cases. Once tallied, seek opportunities to reduce these expenses. Whether it be paying off your debt, investing in tax free financial instruments, or simply budgeting your expenses — find opportunities to make your payments less load bearing. Rid yourself of any unproductive assets. Swap these assets out with long term wealth building investments.
2. Consider investing in a liquid mutual fund
A liquid mutual fund is one which requires a low investment tenure and offers funds that are highly liquid in return. There are a slew of high performing liquid funds currently on the share market. Portfolio management can involve specifically investing in these funds to add more liquidity to your current financial basket. In fact, liquid funds are some of the best mutual funds to invest in due to the benefit of being able to sell them quickly and with ease.
3. Diversify your portfolio
Adding diversity to your portfolio is one of the ways in which you can make your portfolio more liquid. When you invest in funds that perform well at different times, you ensure a steady and consistent stream of returns no matter what conditions the market presents. This is because when one fund is underperforming, the market conditions may be ideal to aid another fund to perform really well. Hence, adding diversity keeps your portfolio a lot more liquid than having a uniform portfolio that dominates in one type of asset class. Ensure you are balancing out your equity investments with debt, and try to dip your toe into share market products like ETFs, provided you know the best mutual funds to invest in.
4. Conduct a liquidity scan regularly
Portfolio management is an active process that requires repetition across time. This is because your financial needs change as you grow older and your goals change. A liquidity scan is an assessment of how liquid your portfolio is. oing a liquidity scan can tell you how well your portfolio can aid you during emergencies. Too much liquidity may not be ideal for some investors so scanning their portfolios to check for the optimal level is crucial. It is important to allocate your assets differently depending upon your new goals.