Liquidity refers to how easily you can convert your investments into cash without significantly affecting their value. For example, if you have $10,000 in stocks, you can typically sell them quickly within market hours. However, if you own a piece of real estate worth $200,000, it may take time and effort to sell it, and you might not get the price you want right away. Having a portion of your investments in liquid assets can ensure you have cash available when you need it, for emergencies or investment opportunities.

Liquidity is the ease with which an asset can be converted into cash. High liquidity means you can sell the asset quickly and with minimal changes to its price, while low liquidity means that the asset may take longer to sell, which could result in a lower selling price.