The Liquidity Imperative for Financial Planning Today
Cash is always king of the financial planning world. Its dominance as a priority has been heightened of late. Nothing can be as cramping as losing liquidity in a volatile and inflationary market environment.
No one can rule out unforeseen requirements for large amount of cash. Some types of sickness and accidents may not be covered by adequate health insurance. Natural disasters may leave one with large repair bills for essential assets. This comes on top of planned outflows such as for a child’s education.
Market volatility makes instruments of fixed returns look attractive. We have published before on the merits of bonds: Investing in Bonds
Financial planning is all about balance. There are strong arguments in favor of low yield, fixed income investments. However, no portfolio should be without the flexibility to produce a surge of cash in a time of sudden need.
Opportunity rather than dire need may drive the need for cash. Distress sales of realty with significant growth potential are typical examples. Excellent stock investment opportunities may arise from sudden changes in political equations around the world. Democracies in Pakistan and Zimbabwe will present new investment possibilities. This also applies to any binding Indian decision to build new nuclear power plants.
Though banking blue chips have abruptly changed color, there is no dearth of reliable stocks. Big stock index movers may not offer stable profit potentials, but you can trade them for cash on any trading day. Such stocks are also the first to bounce back after every steep dive.