When You Need Capital Quickly, Think 'Ready, Set, Fund': A Financial Adviser's Strategy

Liquidity options play an essential role in every investor's portfolio. They allow investors to access capital quickly without having to prematurely liquidate assets or derail their long-term investment strategies.

This flexibility can be incredibly helpful when business opportunities arise or family members need support. Liquidity options can also offer tax and estate planning advantages — helpful for those looking to minimize capital gains and pass on wealth.

As with any financial strategy, it's essential to understand the ins and outs before putting the plan in motion.

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The Kiplinger Building Wealth program handpicks financial advisers and business owners from around the world to share retirement, estate planning and tax strategies to preserve and grow your wealth. These experts, who never pay for inclusion on the site, include professional wealth managers, fiduciary financial planners, CPAs and lawyers. Most of them have certifications including CFP®, ChFC®, IAR, AIF®, CDFA® and more, and their stellar records can be checked through the SEC or FINRA.

Think of it like preparing for a race:

• Ready means understanding your options
• Set is about weighing the benefits against the tradeoffs
• Fund is the confident execution of your strategy

Getting into formation this way sets you up to compete — and win — at your short-term goals. And as a financial adviser with extensive experience helping investors navigate these opportunities, I'm here to help you through it.

Ready: Understanding your options

Liquidity strategies typically fall into the following three categories: Asset accounts, secured credit and unsecured credit.

• Asset accounts. These are vehicles that offer quick access to cash with minimal disruption, such as savings accounts and cash management accounts, money market accounts, and investments in short-term bonds or money market funds within taxable investment accounts
• Secured credit. This refers to loans that leverage existing assets to unlock liquidity, such as margin loans, home equity lines of credit (HELOCs) and 401(k) loans
• Unsecured credit. This pertains to options that don't require collateral, such as personal loans, credit cards and intrafamily loans

There are many options within each category, and each comes with its own considerations.

The key to selecting one is understanding how these tools fit into your overall financial picture and align with your goals and risk tolerance.

Set: Exploring the risks and benefits

Across the three liquidity categories, many of my ultra-high-net-worth clients find short-term bonds, margin loans and intrafamily loans to be well suited to their needs.

Short-term bonds are fixed-income investments with maturities typically under three years. They offer a relatively stable way to park cash and can help you avoid high-interest borrowing costs.

For example, if you need $250,000 and are considering a loan with an 8.5% interest rate, you could end up paying about $10,625 in interest over six months.

If you had that amount invested in short-term bonds instead, you could sell them to access the funds — potentially avoiding the borrowing cost and triggering little to no capital gains if sold near maturity.

That said, short-term bonds generally offer lower returns than other investments and are still subject to the following risks: inflation and interest rate risks, reinvestment risks and credit risks. These can affect their value and yield.

Margin loans involve borrowing against the value of an investment portfolio. They typically don't require a credit check or loan origination fees, and once your account is approved, funds can often be accessed within a day.

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Loan amounts are generally higher — up to 50% of the value of marginable securities — and repayment terms can be flexible.

In some cases, the interest paid on margin loans may also be tax-deductible, so it's important to consult with both a financial adviser and tax professional to determine what implications are applicable.

Margin loans come with inherent risks, including margin calls, which can force you to deposit additional funds or sell securities at a loss if the value of the collateral drops.

Therefore, they are best suited for individuals with substantial assets due to their sufficient financial resources and overall risk tolerance.

Intrafamily loans are private lending arrangements between family members, often documented with formal terms that meet IRS requirements.

They allow families to set their own repayment schedules and interest rates and can serve as a strategic tool for multigenerational support — keeping assets within the family without requiring credit checks or liquidating investments.

However, if not properly structured, they can lead to unintended tax consequences and IRS scrutiny. They also carry the potential for family tension if repayment becomes an issue.

With these pros and cons in mind, you are now well-equipped to select the best approach and get set for a successful launch.

Fund: Implementing with confidence

Now, here comes the fun part — implementing with clarity and confidence. If you're comfortable doing this yourself, go for it. But if not, you can always lean on a financial adviser.

In some cases, it can make a meaningful difference. In a recent Vanguard survey, 86% of investors reported having more peace of mind when they used an adviser service than when managing finances on their own.

Lastly, remember that liquidity isn't just about having cash on hand — it's about having options.

While all investing is subject to risk, including the possible loss of money, maintaining a balanced and diversified approach can help manage risk and support long-term stability.

With the right strategy, you can stay nimble, seize opportunities and support your goals without sacrificing long-term growth. Because when life moves fast, your finances should be ready to keep up.

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