Behavior #2: Meet uncertainty with liquidity

Wealth

Jan 16

In the face of market volatility, medical calamity, impending chaos, or incoming hurricane, there is no mental balm like substantial liquidity — the knowledge that the majority of your wealth is ready and available for your use.

This “there if I need it” element is a key component in achieving investing serenity; it will keep you fully invested in the face of life’s various slings and arrows.

Having your wealth readily accessible is a function of your investment choices, the allocation decisions you make with your savings. While you can and should accumulate equity in your home and your business, and you can and should consider owning thinly-traded investment vehicles such as hedge funds, rental properties, productive land, and private debt, you should avoid excessive concentration in these illiquid vehicles.

More concisely, don’t put the majority of your money behind locked doors. These are the places where realizing your wealth would involve a lengthy sales process, high-percentage commissions, early redemption penalties, or onerous waiting periods. These are the traps containing the “house poor” and the “equity rich entrepreneur”, those with seemingly adequate yet completely inaccessible net worths who must avail themselves of usurious debt instruments to buy their way out of unforeseen predicaments.

Instead of putting yourself in these situations, allocate most of your savings to investments that are realizable as cash in your checking account within a reasonable period of time — including mutual funds and ETFs, publicly-traded stocks and bonds, and high-yield savings accounts — and then resist any and all temptation to realize them. Buy and hold is always the best policy, but forced buy and hold in the province of the overstressed.