Liquid vs Illiquid Wealth: Why Net Worth Isn't Enough

Two households can share the same net worth and face very different choices. The difference is how much of it they can reach.

Liquidity is how quickly you can turn what you own into cash. For a household, the practical question is simpler. How much money could you get your hands on within a few weeks, without selling a property or a business, paying a penalty, or asking a bank? Net worth, the total of assets minus liabilities, does not answer it. For many New Zealand households the two numbers are a long way apart.

Imagine two couples, each with a net worth of $2 million and earning similar incomes, to illustrate the difference.

1. The first couple own a mortgage-free home worth $1.2 million. They have a $300,000 KiwiSaver balance and $500,000 in an employer superannuation scheme, both locked until retirement except in limited circumstances, and they keep a few thousand dollars in the bank.
2. The second couple own the same home with a $400,000 mortgage. They have total KiwiSaver balances of $200,000, $950,000 in a diversified portfolio comprised of listed shares, bonds and funds, and $50,000 on call.

Suppose each couple needed $100,000 within a fortnight. The second couple already have $50,000 available, so they only need to sell $50,000 of their portfolio, and they can have all the money within days. The first couple cannot raise the money at all unless a bank agrees to lend against their home at short notice. The couples have identical net worth and very different choices.

What counts as liquid

Liquidity runs along a spectrum of accessibility. Some assets are very easy to access, others are not. Cash at the bank is the easiest to access, so it sits at the accessible end of the spectrum. A farm, a private company or a rental property sits at the other end, each taking months to sell and often costing a meaningful share of the price to do so. In between sit assets which look alike on a statement but might behave very differently when money is needed in a hurry.

Where an asset sits depends on how quickly it can be turned into cash and on how certain the amount is. Listed shares can be sold in a day, at whatever price the market offers. A term deposit has a known value but is unavailable until it matures, unless the bank allows an early withdrawal. Taking both together, assets fall into the layers below:

• Cash you can use today, including the balance in an offset account.
• Money you can reach within about a month at a reasonably predictable value. Term deposits maturing within the period or with a clear early withdrawal right, cash funds, and good-quality short-term fixed-interest holdings. These are steadier than shares, but their value and their access terms still need checking. For some households the practical horizon is 60 or 90 days, depending on what they hold and on what terms.
• Investments you can sell, at whatever price the market offers on the day. Shares, longer-term bonds, listed property and the funds which hold them. In normal conditions they can be sold promptly, though settlement and platform withdrawals can add several business days. What they cannot promise is the price. A share portfolio can fall by a fifth or more in a bad year. The years in which households most need cash, a recession with redundancies and business failures, are often the years in which investment markets are down. In this regard, accessible ("liquid") is not the same as safe.

How little accessible money most New Zealand households hold

Stats NZ's household net worth survey for the year ended June 2024 puts median household net worth at $529,000, up 33 percent in three years, with rising property values the main reason. Owner-occupied housing and other real estate made up 48 percent of everything households own, up from 43 percent in 2021.

The median household's accessible money is small. It holds $14,000 in currency and deposits and $25,000 in pension funds, including KiwiSaver balances. Its median holding of other financial assets is nil, which means at least half of all households hold no investments outside deposits and retirement savings. This is a broad category, covering shares, bonds, managed funds, business equity and investments held through family trusts. Only among the wealthiest fifth is the median above zero, at $435,000, and the wealthiest fifth holds more than 90 percent of the national total in this category.

The category is not a direct measure of liquidity. Not everything in it can be sold quickly, particularly the business and trust holdings, and the survey measures what households own rather than what they can access. For the typical household, wealth is a house, a KiwiSaver balance and a modest deposit balance. Investments beyond those are concentrated among the wealthiest 20 percent.

Financial assets such as pension funds, shares and investment funds make up a far larger share of wealth among the wealthiest fifth than among other households. Part of the reason is simple: a home is the largest single purchase most households make, and once it is bought, further savings go elsewhere. The pattern our advisers see is wealth built through property and a business, then shifted gradually into liquid, diversified holdings once the household can afford to think about flexibility as well as growth.

KiwiSaver balances are locked for most households, and the lock is firm. At 31 March 2026 the scheme had 3.44 million members and $138.8 billion under management. By design it is generally locked until 65, with limited grounds for early withdrawal. The two most relevant to household liquidity are a qualifying first-home purchase and significant financial hardship. A hardship application is decided by each scheme's supervisor, who considers the evidence, whether other reasonable options have been used up, and how much is needed to relieve the hardship. In the year to March 2026 there were 51,609 hardship withdrawals totalling $531.5 million, an average of about $10,300. It is an emergency mechanism, and the usual withdrawal is sized to the hardship rather than to the member's balance.

The other large holdings are illiquid for reasons of their own. A family home provides shelter, stability, and security but produces cash only when sold, after agent fees, legal costs and a usual selling period of months. An investment property is the same, and a tenant can add a notice period or narrow the pool of buyers. A private business or a farm is often the most valuable thing a household owns and the hardest to sell: demand for some of these assets ebbs and flows. Some sales involve an earnout, in which the former owner stays on under new ownership before the full price is paid.

Borrowing against the home

Circling back to the two-household example provided earlier, the first couple's position has an obvious benefit: no mortgage repayments and no interest. Lenders look at the income available to repay a loan, though, not just at net worth. The events most likely to create a sudden need for cash, such as redundancy, serious illness or the death of the main earner, are the same events which make a new loan hard to get. A household with a mortgage-free home but disrupted or no income may find ordinary borrowing harder than it expects. The alternative for older homeowners, a reverse mortgage, comes with its own costs and trade-offs.

An existing credit facility is the other obvious answer. An approved revolving credit or offset facility, an undrawn overdraft or a credit card limit gives access to money on the lender's terms, and those terms vary. For example, ANZ's current terms for its flexible home loan say the bank "can ask you to repay your ANZ Flexible Home Loan or reduce your credit limit at any time". The same terms commit the bank to act fairly and reasonably when it does. Access to the facility is governed by a lending contract, so undrawn credit remains different from cash held in a bank account.

What liquidity gives you

Liquidity gives a household control over timing. An unexpected cost can be met without a rushed sale. A worthwhile opportunity, such as a chance to buy into a business or a commercial property offered at a favourable price, can be weighed on its merits rather than passed over because the money is tied up elsewhere. Either way, a short-term event is handled without forcing a poor long-term decision.

Liquidity follows from the assets you choose

Any mix of assets can be the right one depending on your aims and situation. How liquid an asset is says little about how well it performs. Shares are among the most liquid assets available and, over long periods, among the best performing. A household holding a $2 million diversified share portfolio can be almost entirely liquid and extremely well placed. Equally, a small or mid-sized business owner can rightly have most of their wealth in a company which cannot be sold quickly, because the business is where their capital earns the most.

The right level of liquidity follows from which assets a household chooses to hold, what each one is for, how long it is needed, and the liabilities and commitments sitting against it. Although a home gives shelter and usually long-term growth, it is illiquid, and so is a business. A diversified portfolio gives growth and access, with a value which fluctuates. Cash gives certainty and access, with little return. Each can be the right choice, provided the household chose it knowing what the asset can and cannot do when money is needed.

The more common situation is illiquidity arrived at by accident. For example, a couple who have put every spare dollar into the mortgage and KiwiSaver contributions for 20 years have made a series of individually sensible decisions and ended up, without deliberately deciding to, with nothing they can reach.

"Being truly wealthy usually means having choices: flexibility, freedom, and perhaps a sense of financial security. Illiquid assets can be great, though too often we'll find they cannot provide the freedom and flexibility people truly strive for." Jonny McNamee, financial adviser at Become Wealth.

What to do if your wealth is hard to reach

Step back and look at everything you own and owe as one picture. Then compare the picture with your goals, your timeframes and your liabilities. Add the commitments which could arise before an illiquid asset could reasonably be sold: several months without income, a known tax payment, family support, property work or a business commitment. What matters is whether the money you could reach within a month matches the needs which could arise within a month. A dedicated emergency fund to cover short-term unexpected costs is the usual approach to these contingencies.

Add up the cash and the money you could reach within a month at a steady value. Record the market-priced investments at today's value, then test them against a fall. Use a bigger fall for shares than for short-term fixed interest. Leave out illiquid assets such as the family home, any investment property, business or farm equity, and locked retirement savings.

Where too little is accessible, the position can be deliberately corrected over time. It might be suitable to direct new savings to accessible investments rather than to extra mortgage repayments or voluntary KiwiSaver contributions. This might include the proceeds of a planned sale of a business or a property. Admittedly, a comparatively wealthy household has far more room to move than a poorer one as they usually have more assets to rearrange or income to redirect, but the direction of the decision is the same at any level.

Choose the mix on purpose

A paid-off home, a thriving business and a large KiwiSaver balance are each impressive, and net worth counts them all. What it leaves out is how much of them could be reached within a month, and how much of that would hold its value when needed.

Ensure your household has the flexibility and choices it deserves.

If you want the flexibility to change careers, buy or launch a business, or meet a large expense without selling the wrong asset, we can look at how the parts of your financial position work together. Get in touch with Become Wealth for a confidential and complimentary review.