Eric Czepyha, Director, Business Services
Faced with a rapidly shifting socioeconomic landscape, many investors find themselves wanting to fund major purchases – whether to further a passion (vacation homes, aircraft, yachts), make direct investments or start a new business.
Although motives and investment vehicles for “the next big thing” vary greatly from one investor to another, these opportunities have one thing in common: they require significant liquidity.
Assets serve a purpose – and should be intentionally invested to achieve those goals. A framework for vetting liquidity needs – and available sources of liquidity – will ensure new opportunities do not undermine the ability to fulfill existing goals.
A 2022 study of high-net-worth investors conducted by The Northern Trust Institute asked respondents where they would source additional liquidity if needed to fund a major purchase. Overwhelmingly, more than 75% indicated they would sell existing assets, with far fewer considering options to borrow.
However, under the right circumstances, tapping into leverage can be a valuable strategy to fund liquidity needs.
For instance, borrowing against your portfolio, rather than liquidating assets, can help keep your investment strategy intact and avoid the need to sell risk assets at depressed prices or during periods of excessive market volatility. Consider the following example:
Using Leverage vs. Liquidation
$2M Lifestyle Purchase with Loan Payoff in Year 5
The growth potential of your investments can be greater than the cost of credit. Using leverage may increase the value of your investments even after repaying borrowed funds.
What is the optimal way to fund a major purchase or investment? Though the answer to this question will be as different as the individual investors and opportunities, we find that a systematic, goals-centered approach to vetting your options will yield the best outcomes for your portfolio and wealth plan — and perhaps most importantly, for successfully realizing your “next big thing.”
To learn more about our framework for funding major purchases, download the full paper.
What’s Your Next Big Thing?
A framework for vetting sources of capital to fund new opportunities.