We propose a simple analytical construct for incorporating liquidity into portfolio choice. If investors deploy liquidity to raise a portfolio’s expected utility beyond its original expected utility, we attach a shadow asset to tradable assets. If, instead, they deploy liquidity to prevent a portfolio’s expected utility from falling, we attach a shadow liability to assets that are not tradable. This construct enables investors to determine the optimal allocation to illiquid assets. Alternatively, they can use this construct to estimate the premium required of an illiquid asset, or the degree to which they must benefit from liquidity in order to justify foregoing investment in illiquid assets. This approach improves upon other methods of incorporating liquidity into portfolio choice in four fundamental ways: First, it mirrors what actually occurs within a portfolio. Second, it maps units of liquidity onto units of expected return and risk, so that investors can analyze liquidity within the same context as other portfolio decisions. Third, it distinguishes absolute illiquidity from partial illiquidity and enables investors to address these attributes within a single, unifying framework. Fourth, it recognizes that liquidity serves not only to meet demands for capital, but to exploit opportunities as well, thus revealing that investors bear an illiquidity cost to the extent any fraction of a portfolio is immobile.