Making the right financial decision at the right time is extremely crucial to grow the assets and their value. Businesses usually keep some liquid assets aside for their unexpected immediate needs. However, other entities and potential investors do not have such immediate needs, which makes them ideal parties to invest their liquid assets in promising ventures.
Liquid assets are cash or mutual funds which are easily convertible. On the other hand, illiquid assets or fixed assets are the ones that are not easily convertible. Unlike popular opinion, liquid assets are more susceptible to losses; therefore, avoiding them is highly recommended. Keeping liquid assets comes with its fair share of challenges, knowing which will help you make the right choice.
Scroll down into the details of this article to learn and explore why investors should avoid liquid assets and make the right investment decisions to protect and grow their funds.
Top 5 Reasons Investors Should Not Keep Liquid Assets
Liquid assets are generally deemed as low-risk options as the potential investors are not looking for higher returns. However, these can prove a risk and earn loss even without a specific investment. If you are not a business that might need liquid assets urgently, converting these to illiquid assets is a more profitable option.
Here are some of the most notable reasons investors should not keep liquid assets and look for reliable long-term investment opportunities.
1. Inflation Risk
Inflation risk is the foremost reason potential investors should not keep liquid assets but invest them in promising ventures. Liquid assets or funds like cash, monetary, and mutual funds are more susceptible to market conditions and the resultant inflation. The value of such assets can decrease or you may even get a low interest rate over the fixed assets.
On the other hand, converting the liquid assets to illiquid assets is a more viable and secure option. It will have little inflation risk but the value of your assets will not decrease. However, it also requires financial and market expertise. Due to this, potential investors contact asset management companies in the UAE and let experts manage and invest their assets where profitable.
2. Tax Considerations
Tax considerations are the next major reason potential investors should avoid keeping liquid funds. Tax benefits are usually not applicable to liquid assets. If you earn a little value over the liquid assets through mutual funds or interest rates, the tax will be accounted for according to that. So, you may even end up paying more tax than the limited profit earned.
On the contrary, illiquid assets like real estate have specific tax advantages, which will not only protect your initial investment but also incur limited tax charges. It will significantly help you grow your assets, so weigh your options and make the right choice.
3. Missed Growth Opportunities
Missed growth opportunities are the next major reason potential investors should avoid liquid assets. Generally, investors believe that having liquid assets in hand can allow them the ease of investing when and wherever they want. This is true for businesses that might need liquid assets in a short time.
However, doing so without any potential or immediate need only highlights missed growth opportunities. Keeping liquid assets at home or in a bank will not grow their value as much as investing them in real estate or other promising ventures. So, not converting liquid assets to illiquid assets is nothing less than compromising their growth value.
4. Unpredictable Market
An unpredictable market is the next reason potential investors should avoid keeping their assets in liquid form. At times, potential investors do not invest their liquid assets in some funds, real estate, or other promising ventures. They try to accumulate cash and wait for the market to go a little down, so they can make a profit through it.
If you are also thinking the same, you must know that market conditions are never too predictable. A sudden incident can lead to a ninety-degree shift in the market conditions and make you lose your liquid assets, let alone earn profit over them. So, do not wait for market conditions to take a certain shift but make the right choice when the market is stable.
5. Low Returns
Low returns are the last reason potential investors should not keep their assets in liquid form. Most people keep liquid funds to earn a little income through the interest rate. The interest rate usually keeps fluctuating and is not too high to generate consistent income. So, in the long run, your liquid assets might face more loss than the amount earned through the interest rate.
On the contrary, converting your liquid assets to illiquid assets can help you secure higher returns even on limited investments. However, it is dependent on the right investment decision and asset management. You can consult asset management companies and let experts manage your liquid assets and secure higher returns.
Are You Interested in Investing Your Liquid Assets?
Having thorough insights into market conditions, financial challenges, and promising investment ventures is more than necessary to make the right choice. If you lack insight into any, you might regret your decision later on. Instead of taking this risk, you can consult professional asset managers and let experts grow your assets.
