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What are the disadvantages of having too much or too little money held as liquid assets?
Disadvantages of having "too much" $ held as a liquid asset:
1. No profit & lost investment opportunity. If $ is held in a non-interest bearing account, no interest will be earned--no interest earn = no profit--no profit = lost investment opportunity.
2. Low return on investment. If the $ was invested in a low interest bearing account, then low return on investment would be realized. Since not all investments have the same rate of return, there is also an opportunity cost (the $ could have been invested in a different investment at a higher return).
Disadvantages of having "too little" $ held as a liquid asset:
1. In options trading, it could result in greater loss when the market dips & your options are liquidated to pay for the dip, rather than if you have the $ in your account & that could have been used to potentially carry your investments over until more profitable conditions occurred.
2. If you need $ for an emergency & you don't have it, you have an undesireable condition occur that wouldn't have occurred if you have the $ or credit available to pay for the emergency.
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