The benefits of asset liquidity are incredibly overlooked.
Say you own something that is “valued” at $3 million. That’s great! And – well – it can also be a bit of an issue.
Because an appraisal of $3 million is worthless if an asset cannot be sold.
And an asset – particularly an asset worth millions of dollars – would hopefully be yielding something in income.
- So, for example, a million dollar statue may just sit there.
- A million dollars worth of duplexes may produce some rental income.
- And a million dollar home may actually cost you money in property taxes in order to keep it.
You can almost think of it along a Liquidity-Yield Matrix.
And all this is assuming you have 100% ownership – to speak nothing of possible debt.
The point here is that liquidity is incredibly valuable, for the quicker and easier an asset can be converted to cash, the better.
And who wants a huge asset that doesn’t produce income?
Imaginethere’s a supposedly valuable painting sitting in your attic. You put it up for auction, but no one bids. The painting may still have value, but it can’t be turned into cash unless you find a buyer who wants it, is willing to pay,and has the liquid assets to do so. The same is true of stock in your startup. You own something that, on paper, has great worth, but it can’t pay your bills or help you with the down payment on a house.
-Rand Fishkin, Lost And Founder