Liquidity strategies and solutions for high-net-worth investors
Liquidity, or access to cash, is crucial to a successful wealth management plan.
At some point, you’ll likely need substantial cash on relatively short notice to pay for expenses ranging from surprise medical bills to unexpected investment opportunities. What do you do if too much of your wealth is tied up in assets that might take time to access, such as real estate or a business?
Liquidity risk is a balancing act in that you likely don’t want too much or too little. A financial advisor with wealth-planning experience can help you plan for your cash needs, analyze your current holdings and create a cash buffer so you can deal with the unexpected.
Understanding Liquidity needs for high-net-worth individuals
Liquidity needs can come in many forms for high-net-worth individuals. For someone with a portfolio of properties, for example, it might mean having enough cash on hand to cover monthly mortgage payments, property taxes and maintenance. For others, it could mean having enough cash to cover a larger-than-expected tax bill or to handle a legal settlement, a medical bill or a home renovation project.
Keep in mind that readily available funds are often referred to as “cash,” regardless of their form or account type:
- Everyday cash often lives in checking accounts and is used for spending and paying bills.
- Savings-oriented cash is set aside, perhaps in a savings account or a money market account, for a bigger goal.
- Investment cash is designated for investment when the right opportunity arises.
The places where you keep those different kinds of cash and the returns you can generate are all unique. A smart approach to managing Liquidity can help you access the capital you need when you need it. Think of it as essential risk management for your financial life.
Tactics for managing Liquidity for wealthy individuals
As your wealth increases, so do opportunities for investment and diversification. Some valuable but less-liquid assets include:
- Classic cars
- Fine art
- Collectibles and memorabilia
- Gems or precious metals
- Venture capital investments
- Real estate
- Antiques
These all have the potential to grow in value over time, but the market for them can be limited and moves slowly.
These types of assets can make Liquidity management a tricky task, but wealth planning can help with that. In fact, Liquidity is one of the key pillars of UBS Wealth Way, one of our wealth-planning solutions. A good starting point is a cash-flow assessment. Financial advisors can help identify cash-flow needs that are on the way, assess the Liquidity risk of your portfolio and determine where the mix might need to be tweaked to generate sufficient cash.
One main challenge of Liquidity management is that you are dealing with a moving target. Year over year, your cash needs and expenses will change, and market conditions constantly change along with them.
Tax planning plays a role here, too. Selling assets to generate Liquidity can produce taxable events if capital gains are involved, which you want to minimize. Or consider tax-loss harvesting. If you want to exit a bad investment, you might sell it to cover current cash needs and use the loss to apply against other gains at tax time.
The role of financial advisors in Liquidity planning
As your net worth grows and you accumulate a wider range of assets, managing Liquidity becomes increasingly important. And beyond the short term, a financial advisor has tools and strategies to help you keep income flowing for the rest of your life. With products such as long-term care insurance or annuities, you can keep Liquidity high through your golden years and make sure your retirement planning stays on track.
A smart Liquidity strategy is all about you. It factors in things such as when you might be facing a costly operation, when you might want to sell your stake in a private company or when you plan to take an extended family trip abroad. Financial advisors can provide this personalization, which is critical to protecting and managing wealth.
Liquidity to handle whatever life may bring
When done right with the assistance of a financial advisor, your Liquidity strategy can feel purposeful and seamless. It all comes down to having access to the cash you need when you need it.
At a glance
At a glance
- Liquidity ensures cash is available for expenses and emergencies when you need it.
- Balancing liquid and illiquid assets can help prevent cash shortages.
- Financial advisors can help manage Liquidity and minimize financial risk.
See how a UBS Advisor can help you through all of life’s stages.
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Disclosure
UBS Wealth Way is an approach incorporating Liquidity. Longevity. Legacy. strategies that UBS Financial Services Inc. and our Financial Advisors can use to assist clients in exploring and pursuing their wealth management needs and goals over different time frames. This approach is not a promise or guarantee that wealth, or any financial results, can or will be achieved. All investments involve the risk of loss, including the risk of loss of the entire investment. Time frames may vary. Strategies are subject to individual client goals, objectives and suitability.
The information contained in this newsletter is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors, as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks, and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc.
Neither UBS Financial Services Inc. nor its employees (including its financial advisors) provide tax or legal advice. You should consult with your legal counsel and/or your accountant or tax professional regarding the legal or tax implications of a particular suggestion, strategy or investment, including any estate planning strategies, before you invest or implement.
Insurance products are made available by UBS Financial Services Insurance Agency Inc. and by other insurance licensed subsidiaries of UBS Financial Services Inc. through third-party insurance companies unaffiliated with UBS Financial Services Inc.
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