Meet your liquidity needs while staying invested



Tax bills and other obligations can put a strain on your liquidity, but you don't have to hold excess cash or sell assets to address this challenge.

Benjamin Franklin famously opined that the only two certainties of this world seemed to be death and taxes. Of course, while death is a once-in-a-lifetime experience, taxes are typically due regularly and often. While their occurrence may typically be predictable, such obligations can still pose significant challenges. This is true even for the world’s wealthiest individuals and families. Great wealth and well-diversified portfolios are not necessarily synonymous with liquid resources. In fact, the most efficiently allocated investors may have very little spare cash. The bottom line: tax season can trigger a liquidity crunch for almost anyone.

So, what might you do if you’re facing substantial liabilities that require ready cash? (This might not just be for personal, property or business taxes – it could also be for a capital call in relation to a private equity investment, for example.) You could, of course, keep a large pool of cash on standby at all times.

But with interest rates near historic lows, the opportunity cost of this is high. Over time, holding excess cash may mean missing out on new investment opportunities as well as the potential to earn compound returns. In the long run, your wealth compared to other investors may suffer.

Another possibility is to liquidate some of your financial assets to meet your obligations. However, this too may be less than ideal. In General, Citi Private Bank recommends a core investment portfolio be fully invested for the long term.

Selling down parts of it here and there may cause imbalances in your portfolio, increasing risks and lowering your potential returns. Also, selling a profitable investment to settle today’s tax bill may trigger a further tax liability down the line.

Rather than holding large amounts of cash or disturbing your core investment portfolio, you might also consider seeking a revolving line of credit. Margin lending allows you to borrow against the value of your investment portfolio at competitive rates, while also keeping it fully allocated. Such a facility has no expiry date, giving you access to liquidity on an ongoing basis. To help manage your cash flow further, interest-only terms may also be possible.

Beyond tax obligations, a margin loan may also help address other liquidity needs, including: real estate acquisitions, debt refinancing and consolidation, business expansion, and lifestyle or luxury purchases.

For all of its potential advantages, margin lending is not for everyone. To determine whether this type of financing is suitable for you, we first undertake an assessment of your overall situation. This includes analyzing your other liabilities, assets, and cash flow.

We can also help you  understand and estimate the risk of facing a potential margin call – the obligation to post further collateral if market moves cause your portfolio’s value to decline. By applying risk management to your line of credit, we believe you can borrow conveniently and cost-effectively, while continuing to seek long-term returns in your core portfolio.

To learn more about the possibilities of a margin lending, please contact your Private Banker.


See our insights and the issues that matter for your wealth.


See our insights and the issues that matter for your wealth.