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Liquidity describes how easily you can convert an asset into spendable cash. A checking account is highly liquid; a house or a retirement account is not, because selling or withdrawing takes time and may trigger costs or penalties. Holding enough liquid money is what lets you handle emergencies without selling long-term investments at a bad time.
A high-yield savings account is liquid; a 401(k) is not, because early withdrawals are penalized.
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