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Before You Sell Investments for Cash, Consider This Often-Overlooked Strategy
Many investors assume that when a large expense arises, the only option is to sell investments and raise cash. Whether it's a home purchase, a significant tax payment, a business opportunity, or an unexpected life event, selling investments is often the first solution that comes to mind.
But what if there were another option?
For some investors, a securities-backed line of credit can provide access to liquidity without disrupting a thoughtfully designed investment strategy.
Why Selling Investments Isn't Always Ideal
Life rarely waits for the "perfect" market environment. Opportunities and obligations arise regardless of whether markets are up, down, or somewhere in between. Taxes come due, homes become available, businesses require capital, and unexpected expenses occur.
In some cases, selling investments to generate cash can create unintended consequences, including:
• Realizing capital gains and increasing taxes
• Disrupting a long-term investment strategy
• Selling during periods of market volatility
• Missing potential future growth opportunities
What Is Securities-Backed Lending?
Securities-backed lending allows eligible investors to borrow against a taxable investment portfolio without selling the underlying assets. The investments serve as collateral for a line of credit or loan, providing access to cash while allowing the portfolio to remain invested.
Generally, borrowing capacity may be up to approximately 50% to 65% of an eligible, diversified taxable portfolio, though borrowing limits vary based on account holdings and other factors.
The goal isn't necessarily to replace traditional borrowing. Rather, it provides another planning tool that can be useful when timing matters and flexibility is important.
Situations Where It May Make Sense
While every situation is different, securities-backed lending may be useful in several common scenarios.
Home Purchases and Bridge Financing
A competitive real estate market often rewards buyers who can move quickly. Some investors use a securities-backed line of credit to make a cash offer or bridge the gap between buying one property and selling another.
Major Purchases and Unexpected Expenses
Whether funding a renovation, helping family members, or managing an unforeseen expense, having access to liquidity can create valuable flexibility
A Planning Tool, Not a One-Size-Fits-All Solution
At The Boh Heppe Group, we view lending solutions as one component of a broader financial plan. The best strategy is rarely determined by an interest rate alone. Instead, it involves evaluating tax implications, investment considerations, cash flow needs, and long-term objectives together.
Just because a client can borrow against investments doesn't necessarily mean they should. These solutions involve risks and are not appropriate for everyone. If the value of pledged securities declines, borrowers may be required to add collateral, reduce the loan balance, or other actions may be required under the lending agreement. Borrowing against investments should always be carefully evaluated within the context of an overall financial plan.
The Bigger Question
One of our favorite planning questions is simple:
"If something unexpected came up tomorrow, how would you pay for it?"
The answer often reveals opportunities to improve flexibility, reduce potential tax costs, and create greater peace of mind.
Before selling appreciated investments to meet a cash need, it may be worth exploring all available options first.
Sometimes the best financial decision isn't about finding more cash. It's about finding a smarter way to access the resources you already have.