The whole idea of savings and investing lies on a desire to “defer” consumption of current assets (cash), the expectation being that the “investment vehicle” would increase the value of current assets to enable the investor to consume “more” in the future.

Liquidity as a benefit feature of an investment vehicle is sometimes taken to mean that an investment is “short-termed” and thus can be readily be converted back to cash. If we follow this line of reasoning, does this mean that a 5.5 year zero coupon bond is illiquid?

Doc Noet correctly pointed out that liquidity should be taken in the context of “tradability”, that of having a ready market at maturity or if ever the need to sell arises. Selling prior to maturity however runs the risk of loss due to market conditions-interest rates might be higher from the time of the purchase and this would cause the “market price” of the bond to drop.

Under normal market conditions, losses or gain in prices of bonds is a result of movements in interest rates and may not be necessarily due to its “liquidity” or “illiquidity”.

thanks,

if you are conservative and know the timeline when to use back your money, just wait it out until redemption of your bonds guaranteed by the government. no need to be concerned about tradability or liquidity during the period. but if you are the savvy investor, bond trading can open up new opportunities similar to stock market.if i recall small denomination bonds with 13.625% coupon rate was traded at pse before. during the 5-year period price fluctuated between 95-110%.i just don’t know when the fixed income exchange operated by pdex will be opened to the public.i’m sure this will increase tradability and liquidity of our bond market.

This applies to people in the stock market who are blinded by their greed that they overlook the problem of liquidating the stock if it happens to be dormant most of the time. Unfortunately, we have too many people “invest” without being responsible with their money. And by invest, we mean they just buy and they don’t cut their losses when the price falls. In Tagalog, we call this IPIT.

It is a must that for every sort of investment, there must always be some exit plan. Never leaving it to bahala na.

there are no guarantees in stock trading. to gain high, the risk is also high.if you got “ipit,” your short term investment becomes long term and you don’t know when to get back your money.in government bond, you know the maturity date and coupon rate. unless you need the money due to emergency, you are not necessarily “ipit” since you still receive periodic interest income and the principal at maturity.if you need a loan, you can use your bond as collateral.

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