Across all types of liquid assets, there are drawbacks that come up regardless of whether or not you’re in a financial bind. Liquid assets are those that are easily convertible in the form of cash. They refer to cash in hand and items that can be exchanged for cash without significant loss of value. The liquidity of an asset is its ability to be converted into cash quickly. The different types of liquid assets include cash, stocks, bonds, checking accounts, savings accounts, money market accounts, and mutual funds.

Liquid assets certainly come in handy when you have an emergency, but you should know these six things that your liquidity is susceptible to:

1. Fluctuation in price
When you’re able to store so much in the form of different types of liquid assets, you’re liable to lose as much. Say you’re investing your total net worth in the stock market. If the stock you invested in drops by 20% over one year, it cuts 1/5th off your total net worth. Fixed assets, conversely, don’t fluctuate in value to that extent.

2. Ownership
Most of your liquid wealth is likely in your own house. Investors highly and literally value clothing, jewels, art pieces, vehicles, and many other possessions of their own. Since price is volatile, even the most valuable liquid asset collection isn’t guaranteed safety. If you ever need to convert them into cash, you’ll have to accept its value at that point in time. Also, to part with a personal item under this category may be difficult.

3. Inflation rates
Inflation affects prices by large amounts, which means all types of liquid assets are subject to the sways of inflation.

4 Taxation
No matter how little the returns are from a liquid asset, you’ll still have to pay taxes on it. Put it in perspective: if you own something liquid with low interest, having to pay tax on it, alongside the effects of inflation, actually makes you lose cash.

5. Chances of misuse of liquidity
Of course, owning any type of liquid assets is convenient, but it also results in a higher chance of it being misused. Don’t let some things be subject to the same volatile conditions that liquid assets are. For instance, your retirement money should be kept in a 401(k) or IRA account so that you can reap some tax benefits, rather than elsewhere. Here, you can’t take money out without substantial loss, which discourages you from dipping into funds you may need in the future.

6. Business decisions
When your business has high liquidity, it could mean your expenditure on research and development is too low. It’s important for you to generate new lines of income because if your old ones fall, your share prices in the market are at risk. This may cost a lot more than you’re trying to preserve through high liquid cash supply.