Jul 16, 2017

The importance of liquid investment

Hi Friend,

Recently I visited a village in Karnataka.

My relatives there are reasonably well to do in a general sense. They have good land holdings. 

But, I didn't find them as happy as they were may be 3 years ago. 

I enquired for the reason and found that there was no farming that was going on for the past 1-2 years in their fields due to scarcity of water.

Farming was the only source of income for most of them (like salary was the only source of income for most employees) . 

Whatever they saved until now was almost always invested in land as land prices were increasing. 

They never assumed a situation where in there may be no water for farming ( i.e. assuming good times to continue forever ! like most employees who take loans to buy houses, things etc., that are out of their reach, ignoring the fact that their jobs may not be guaranteed)

My relatives are slowly eating in to whatever little cash that they have and know that it is not going to last for too long if the bad times persist . 

Given the government's squeeze on black money and consequent lack of liquidity, they may not be in a position to sell part of their land either even if needed.

Now the question is how many of us are in a position to handle such a situation wherein most of our net worth is in land & buildings (illiquid and may not be useful when needed) if we lose our job , without much stress ?

Mutual funds may be volatile in their returns but their liquidity comes really handy in handling life's volatilities.

Thank you.