Liquidity
Definition
How quickly and easily you can convert an asset into cash without losing value. Cash is 100% liquid. Savings accounts are liquid. Stocks are liquid (sell in minutes). Real estate is not liquid (takes months to sell). Bonds are somewhere in between depending on the bond.
Why It Matters
Liquidity matters for flexibility and emergencies. You need liquid emergency funds, not investments tied up in illiquid assets. But some illiquidity is fine for long-term goals because you're not tempted to panic-sell during downturns.
Example
You need $5,000 urgently. If it's in a savings account, you have it today (liquid). If it's in a rental property worth $500,000, you might wait 3-6 months to sell and lose 5-10% in transaction costs. That's illiquid.