Every investor has their own version of liquidity. Some will stay massively liquid, others will stay massively illiquid.
One of the single greatest variables in how much of your portfolio to keep liquid and how much to keep invested is your investment style.
Some investors play for long-term returns on safer investments. This likely means that they keep a smaller % of their assets liquid.
Others play a more short-term game. They may have some long-term investments as well, but a large portion of their activities indicate that they are looking for gains in the near-term and this requires that they keep liquid funds to jump on an opportunity when they see fit.
I am thinking about this today as I was finishing up some end of year spreadsheets for some investments and also considering how I will proceed into 2020. I tend to keep a large portion of my assets illiquid.
The vast majority of my portfolio is invested in illiquid assets. Things that I don’t expect to sell for years on end. This is not a bad thing in itself, but it does mean that when I find certain opportunities, I have a lag time for jumping on them.
This lag time can be restrictive. While it’s nice to continually earn a return from my investments thanks to dividends and “other income”, it is similarly nice to be able to take advantage of opportunities as they arise.
Lately, I’ve been seeing more opportunities come my way. Especially as I dive back into the world of options.
Whether it’s a crypto arbitrage play, an options spread for an earnings call or moving money into a long-term asset for an income-based return, I have opportunities in front of me. It’s important for me (in this time period) to keep a higher % of my portfolio in liquid assets.
The way I see it, my liquid capital is simply bullets in the gun. The capital I deploy against opportunities that have a great deal of potential. These are not long-term investments.
Long-term investments are like a savings plan. You put the capital in there and then you forget it exists for a while. You let it grow. You don’t micro manage it.
The liquid capital… the bullets in the chamber… are ready to go. They are pre-loaded and ready to be fired at a moments notice.
Last week I saw 3 incredible options plays. I had the ammunition (the capital) ready in my account as I waited for the right conditions. On each of these 3 occasions, I managed to have the bullets loaded and I pulled the trigger on the investments at the right time.
The first yielded a 30% profit.
The second yielded 15%.
The third also yielded 15%.
Not bad for a week’s work. This past week has reaffirmed my belief in measuring your “bullets in the chamber” and keeping a constant awareness about your investment opportunities as they relate to your liquidity.
Measure your liquidity. Keep that figure at the forefront of your investing activities. Adjust as the tides turn and opportunities arise.