How do I account for liquidity risk? - Seedly
 

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Asked by Anonymous

Asked on 01 Mar 2019

How do I account for liquidity risk?

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Paridhi Jhunjhunwala
Paridhi Jhunjhunwala, Associate at Kristal.AI
Level 6. Master
Answered 2w ago

Hi!

To avoid liquidity risk, firstly make sure that you have an emergency fund, which shall cover about 4-6 months of expenses. This fund may be placed in a savings bank account so that the capital is safe, and the money can be used as and when a requirement arises. The rest of the capital can be used for investments. However, all of the excess capital should not be parked in one particular asset class. Diversification in the portfolio to include ETFs, REITS, cryptocurrencies among others, shall reduce the liquidity risk in the portfolio and provide better returns with a lower overall risk. A robo-advisor can provide the benefits of a diversified portfolio without charging an exorbitant fee. I work at Kristal.AI, and it's my passion to evaluate various upcoming investment opportunities.

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Make sure you have set up proper emergency "rainy day" fund and the money you investing with is money you wouldn't need to touch in 6-12 months.

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