What Does It Mean To Liquidate And Move To Cash?


indian-currency-523221_1920Investment is a good practice to uphold. Finance practitioners encourage people and their clients to engage more in investing to upturn the consumption for a future time. Investments are therefore considered a wise choice by most of the people to maintain a healthy and wealthy lifestyle. Now the questions that may arise in the minds of people seeking to aspire to invest are usually somewhat like, where to invest? How much to invest? What options do I have? How much do I allocate in each option and so on?

Where to invest is a question that boggles almost every mind. Among the different options available for an investor are stocks/shares, bonds, property, gold, commodity, etc. The variety of options may confuse an investor, but the wiser choice is to invest a certain portion in nearly each to protect oneself from the evitable risk of uncontrollable factors of politics, nature, variable market, and so on.

The next question that may arise in the mind of an aspiring investor is for how long do I invest and when will my investments be “realized”? This question is not only common among those starting out on the road of investments, but also among the experienced investors. Some experienced investors often struggle to make the right decision at the right time and therefore, end up with losing their hard earned money or at times gaining sub optimal profits. This realization of gains is referred to as liquidating the assets and moving on to cash.

The term liquidate is defined as ‘the act of converting your assets into cash.’ This is usually done by selling the possessed assets and in return, getting cash. In most cases, it is based on how they are valued at the time of liquidation. So, liquidating refers to selling off your assets for the sake of realizing your gains and getting cash in return. In most cases, and for most people, that may seem like an attractive and interesting idea. Yet, it isn’t always wise to liquidate all your assets at once. So, here I will discuss a few reasons why people liquidate and move on to cash and why is that a necessary.

Why Investors Decide to Liquidate and Move on To Cash:

Well, there are various reasons behind it. From some investors, the reasons are entirely individual based being personal requirements and financial inadequacies. Whereas for others, it is usually based on precise calculations and understanding of the market. In the case of latter, the reason affects investors all around and therefore, one should adopt methods to understand the market dynamics. For instance, certain political upheaval might lead to potential disturbance in the market. Therefore, causing the market to suffer too from a strong plunge.

If you are smart enough to anticipate the fall in points, then liquidating the assets that are likely to be affected is a wise option. For instance, stocks and shares would be the right move. In the stock market, this is a rule that follows: Sell when the market is high and buy when the market is low. As simple as it sounds, on the contrary, it is just as hard to anticipate and follow through. Since the market is dynamic and fluctuates due to a number of underlying factors, it is usually not possible for every investor to identify the likely trend the market is to follow. Those who can, win the deal!

Why is it necessary to Liquidate and Move on To Cash:

As I mentioned, the market follows a simple rule: Sell when the market is high and buy when the market is low. In order to ride with it, it is important to understand it to ensure you don’t end up losing all your money. Even the most experienced traders fail to identify the signal to buy or sell and hence, fall prey to liquidating at the wrong times.

One last word of advice, it is not considered right to pull out all the investments in one go by liquidating all of them and turning to cash and keeping it that way. In fact, it is better to liquidate only the assets you deem will be affected by the downtrend and only for the amount of time until the market starts to move back on track.

Wish you all lots of benefits with all your investments!

Picture Source: Pixabay

 

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