Patrick Iturra, Asset Manager at Estate Investments Group
Liquidity and Why Is It Important?
Liquidity shows your ability to convert assets or pay in cash through loans in money to meet short-term liabilities.
Liquidity is crucial for everyone! Whether you are a big organization or an individual investor.
If you have been following the news, you must be aware of the latest FTX crash. I will use this example to help you understand the importance of liquidity.
FTX is one of the biggest crypto exchange platforms, and Sam Bankman Fried was the platform’s founder. He was considered the savior of the crypto exchange industry.
Recently he filed for bankruptcy; just nine months ago, FTX was valued at $32 billion. But what happened to him?
How did this happen?
Well, there are different reasons for this:
- Mismanagement of Funds
- Lack of liquidity
- Bulk customer withdrawal requests at the same time.
Sam Bank Man Fried transferred funds to his trading company Alameda research, which was founded and owned by Sam Bank man Fried.
Which was stacked in most of the FTT tokens which FTX itself created. Most of the asset value was held in the form of FTT tokens.
Binance, another crypto exchange platform Like GSPartners and Changpeng Zhao Binance’s CEO, tweeted that they would not accept FTT deposits. This is because Binance would be selling off its stake in the FTT tokens. This resulted in massive sell-outs and withdrawals from FTX within 72 hours.
When customers ask for withdrawals, you have to pay them! But, this is when the FTX crash happened because most of their value was in the FTT tokens, which were devalued due to the massive sell-out. As a result, this created a liquidity gap for FTX, and they could not pay their customers.
To make it even worse, the mismanagement of funds led to $1 billion being lost during the transfer to Alameda research, Sam’s own trading company.
Combining this, there was a $6-$10 billion gap for FTX. Currently, Sam Bankman Fried has resigned from the position of CEO.
What do we learn from this? Liquidity is essential; this was a case of a multi-billion dollar company being declared bankrupt due to a lack of liquidity.
How to maintain liquidity?
As an investor, you should always invest in assets that can be liquidated in times of need. For example, assets such as real estate and gold will continue to have value in the future, and you should always invest your money in such assets.
Build an emergency fund:
Another way to maintain liquidity is to build an emergency fund that has money that has money for short-term expenses or any urgent expense.
An emergency fund will act as insurance to keep your money invested into the assets that will generate long-term wealth for you. It will also help you live stress-free, manage expenses, and enjoy financial freedom.
Invest in assets to generate long-term wealth:
Apart from an emergency fund, you must generate long-term wealth for yourself! For example, investing in the right real estate property will generate passive income and grow in value in the long run.
You can also invest in stocks and bonds as well. I would recommend real estate because it has proven its worth and generated long-term wealth for many people. But you have to do a lot of research to do this, you need to invest in the right real estate, and that is where I will help you!
Over the past 24+ years, I have worked as a strategic investment advisor for big companies and individual investors. I have helped people make passive income and long-term wealth. I can do the same for you!
If you are looking to build your wealth in the long term, then you can contact me here.
I am here to answer all your queries. Let’s build wealth for you!
“Our investors hire us for one main reason: they want us to prevent the leakage of their significant operating expenses in real estate, contracting, licensing, and facilities management while they focus on their core business, investing.”
We do not sell houses. We grow your assets. Patrick Iturra, Asset Manager at Estate Investments Group.