When investing, we typically focus first on returns, risks and market volatility. But there is another factor just as important as yield — liquidity in investments. It determines how quickly and easily you can access your money when unexpected changes occur in life or in the markets.

In this article, Kristiāns Purviņš, Head of the TWINO Investment Platform, explains what liquidity in investments means, how it affects access to your capital, and what an optimal investment portfolio structure looks like when viewed through the lens of liquidity.

What is investment liquidity?

Simply put, investment liquidity refers to how quickly you can convert your investment into cash without losing a significant portion of its value.

High liquidity means:

• Quick access to your funds,

• The ability to sell an investment at market price rapidly,

• Greater flexibility in financial decision-making.

Low liquidity, on the other hand, means that selling an investment may take time or require accepting a lower price.

For example, if all your capital is tied up in real estate or long-term funds with withdrawal restrictions, your portfolio may be valuable on paper — but your funds are not freely accessible.

Why does liquidity matter to investors?

1. Access to funds in unexpected situations

Life can present situations where money is needed quickly — unplanned expenses, illness, loss of income, reduced earnings, car repairs, and so on. If most of your capital is invested in low-liquidity assets, you may find yourself in a situation where your money is effectively "frozen". Recovering it will take time, or you may be forced to accept a loss.

2. Flexible investing

Liquidity enables investors to be agile. When more attractive investment opportunities appear in the market, liquid assets allow you to react quickly and reallocate your portfolio.

This investment flexibility is especially important in dynamic market conditions.

3. Investment risk

Liquidity is also closely linked to investment risk. Less liquid investments often offer higher yield potential because the investor assumes the additional risk that funds will not be immediately accessible.

It is worth bearing in mind that investment liquidity can decrease rapidly during market crises:

• Equities may be difficult to sell at a "normal" price,

• Some funds may temporarily suspend withdrawals.

How does liquidity differ across investment types?

Liquidity can vary significantly depending on the type of asset.

Cash is the most liquid asset — it is available immediately and without restrictions.

Publicly traded equities and ETFs generally offer high liquidity, as they can be sold relatively quickly, although their price may fluctuate.

Bonds tend to have moderate liquidity — the ability to sell depends on market conditions and the specific instrument.

Real estate typically has low liquidity, as the sales process can be time-consuming.

Private investments are usually the least liquid — in such cases, capital may be inaccessible for several years. This category includes investments in start-ups (startup equity), private equity funds, investments in non-publicly traded companies, and in some cases long-term crowdfunding projects.

Liquidity and investment term

One of the most important aspects of assessing liquidity is the investment term.

Short-term investments

If you plan to use your funds within the next 1–3 years, high liquidity is essential. In such cases, priority should be given to solutions where your money is readily accessible.

Fixed-term investments

Fixed-term investments mean you know in advance how long your funds will be invested and when they will become available. They often offer higher returns and, while access to capital is limited until the end of the term, the investor gains clear predictability and control over cash flow.

Importantly, a fixed term does not always mean a long term. It can also be a comparatively short period (for example, a few months), which allows you to plan investments according to your goals and maintain a balanced level of liquidity within your portfolio.

How to choose the right level of liquidity?

There is no one-size-fits-all answer — everything depends on your financial situation, income stability and personal goals. However, several practical principles can help you make sound decisions.

1. Start with an emergency fund

Before investing, it is advisable to build up savings for unexpected situations covering at least 3–6 months of expenses. However, this emergency fund should not be treated as part of your investment portfolio.

Example:

• If your monthly expenses are €1,200, your emergency fund should be in the range of €3,600–€7,200, although this amount is individual and may vary depending on your situation, income stability and other circumstances. This money should be kept in a highly liquid form (in a current or savings account),

• It should not be placed in less liquid instruments.

• At the same time, a portion of these funds can be directed into high-liquidity investment solutions that allow relatively quick access to capital while still earning interest. This can make your emergency fund more effective without sacrificing accessibility.

Building an emergency fund helps you avoid having to exit investments at the worst possible moment to cover unplanned everyday expenses.

2. Structure your portfolio by liquidity level

An effective approach is to structure your investment portfolio not only by asset type and risk level, but also by its liquidity level. In practice, this means three distinct "layers":

A. High Liquidity (for security and flexibility)

This portion consists of funds and investments that must be accessible relatively quickly or with minimal restrictions:

• Short-term investments with high liquidity,

• Liquid financial instruments (such as money market solutions, etc.).

Recommended proportion: 10–30% of the total portfolio.

For example, if your total capital is €20,000, then €2,000–€6,000 should be held in highly liquid instruments.

B. Moderate Liquidity (for growth with flexibility)

This category includes investments that can be sold relatively quickly, but whose value may fluctuate:

• Exchange-traded financial instruments,

• A portion of structured investments,

• A portion of ABS investments with potential secondary market access.

Examples include ETFs or equities that can be sold within a few days, structured investments with the option to sell before maturity, ABS investments that can be sold on the secondary market if demand exists, or high-liquidity ABS solutions that offer more flexible access to funds (such as TWINO FLEXI).

Typical allocation: 40–60% of the portfolio.

From €20,000, this means keeping €8,000–€12,000 in this segment to maintain flexible investment capacity.

C. Low Liquidity (for higher yield potential)

These are investments with restricted access to capital, but often with higher return potential:

• Fixed-term investments without the option to sell on the secondary market,

• Less liquid equities (for example, companies with low trading volumes),

• Real estate,

• A portion of ABS securities with a defined term.

Examples include a 24–36 month ABS instrument without an exit option, purchasing a property or property share for rental, shares in lesser-known companies with low market activity (including on the Latvian stock exchange), and bond investments.

Typical allocation: 10–30% of the portfolio.

From €20,000, approximately €2,000–€6,000 is recommended for long-term investments.

3. Align liquidity with your goals

The liquidity level of your investments should match when you plan to use the money:

• 0–2 years → high liquidity (accessibility is the priority),

• 3–7 years → a combination (partly highly liquid, partly fixed-term),

• 10+ years → you can afford a greater share of illiquid investments.

Example: If you plan to make a down payment on a property in two years, that sum should not be placed in fixed-term instruments that exceed this period without an option to withdraw early.

Portfolio diversification by liquidity — a practical example

For an available sum of €15,000, a recommended portfolio structure would be:

• €4,500 (30%) — high-liquidity investments,

• €7,500 (50%) — moderate liquidity,

• €3,000 (20%) — low liquidity.

Liquidity in ABS Securities

Asset-backed securities (ABS) on the TWINO platform are investment instruments in which investor capital is placed into loan portfolios that are structured into a single financial product with defined conditions — a term, yield and cash flow. The liquidity of TWINO's ABS products depends on the structure of the specific solution. In practice, this means:

• Fixed-term ABS investments with a pre-defined yield (from 8 to 12% per year) and a clear term structure of 3 to 12 months. For example, the TWINO platform offers a secondary market where you can sell your investment to other investors before the end of the term,

• Certain solutions on the TWINO platform offer high liquidity — for example, TWINO FLEXI, which provides flexible access to funds and delivers a 6% annual yield with the option to access your capital immediately,

• Where needed, it is possible to combine different terms, creating a so-called "laddering" strategy.

Example: Instead of investing €6,000 in a single 12-month instrument, from a liquidity perspective it may be more prudent to split the investment as follows:

• €2,000 for 12 months,

• €2,000 for 24 months,

• €2,000 for 36 months.

The result is more predictable availability of free capital and better liquidity control when you need it.

Common investment liquidity mistakes

Even experienced investors tend to underestimate the importance of liquidity and may fall into one of these typical traps.

1. Investing all capital in illiquid assets

In pursuit of higher returns, investors sometimes allocate too large a share of their funds to fixed-term or other less liquid investments.

As a result:

• Access to funds becomes restricted,

• Selling at a loss may become necessary,

• New opportunities in the market cannot be acted upon.

2. Insufficient emergency fund

Investing without a 3–6 month savings buffer is excessive risk that can lead to unpleasant consequences:

• Having to liquidate investments urgently,

• Financial stress in unexpected situations,

• Excessive focus on the investment portfolio, which can lead to impulsive decisions during market volatility.

3. Choosing the wrong investment term

Committing funds to a fixed term that does not align with your personal goals can lead to a situation where capital is unavailable precisely when you need it, forcing you to seek alternative sources of financing.

4. Over-reliance on the secondary market

Some investments (including ABS) offer the possibility of selling before the end of the term, but this is not always guaranteed. It may not be possible to sell immediately, and the price may be lower than expected.

The recommendation: treat the secondary market as an additional option, not a guaranteed liquidity solution.

Investment liquidity

Liquidity is an essential component of any investment strategy.

A well-chosen allocation of investments across liquidity levels helps maintain financial stability while taking advantage of growth opportunities — without sacrificing access to your capital.

TWINO offers investments in ABS securities with different terms, allowing investors to assess the balance between liquidity, term length and yield potential that best suits their individual needs.

For more information, visit the FAQ and tutorial sections on our website, or contact our specialists who will be happy to answer any questions.

Email: [email protected]

Address: Dzirnavu iela 42, Riga, LV-1010, Latvia

This material is informational and is not an individual investment recommendation.