Insights

Elite Wealth Management: Leveraging Liquidity and Cash Strategies

Rob Edwards

Managing Director – Investments
Senior PIM® Portfolio Manager


Key Takeaways:

  • Affluent individuals strategically balance quick-to-convert assets with longer-term investments in an effort to ensure immediate access to funds for opportunities while also allowing for the growth of long-term investments.
  • Cash alternatives can serve as a buffer during uncertain times, intended to prevent forced asset sales at a loss and enabling smart navigation through turbulent market conditions.
  • High-net-worth individuals integrate cash alternatives to provide liquidity, and tax-free interest income, and contribute to a tax-efficient wealth strategy.

Deciding where and how to keep your money needs careful thought and planning. That’s where the strategy of liquidity comes into play.

Affluent individuals strategically manage their finances. A crucial part of their financial expertise involves effectively handling elements known as "liquidity" and "cash alternatives." This article explores how these financially savvy individuals smartly grow their wealth.


Liquidity Refresher

Wealthy individuals understand the critical need for a delicate equilibrium between assets readily convertible to cash and those with a longer-term growth trajectory. They strategically allocate their resources to strike this balance, ensuring immediate accessibility for emerging opportunities while fostering the growth of investments that demand patience.

Market Volatility Buffer

According to the CNBC Millionaire Survey of households with $1 million or more in investable assets, the average high-net-worth individuals carries about 25% of their portfolio in cash. There are various reasons for this but the most prevalent is to offset market volatility.

Volatility is inherent in financial markets, and smart investors may use cash alternatives as a hedging tool. During periods of market uncertainty, holding a higher percentage of liquid assets can act as a buffer, to help navigate turbulent times without being forced to sell assets at a loss.


Emergency Reserves and Investment Opportunities

At the heart of wealth management for wealthy individuals is to make sure there is significant emergency savings. These savings are usually kept in easily accessible options like money market funds or short-term government bonds, as these can help serve like a financial safety net. In a market contraction, having available cash on hand can allow investors to take advantage of unexpected opportunities, like buying undervalued assets.

Some common examples of cash alternatives are money market mutual funds, certificates of deposit (CDs), commercial paper, and Treasury bills/notes. The allure of treasury bills is due to the fact that the individual can keep rolling them over to reinvest them and liquidate them when they need the cash.

The tactical use of cash alternatives is a hallmark of a shrewd financial approach.

Strategic Allocation

Let us not forget about diversification playing a significant role here. By now you know the importance of a diversified portfolio. Cash alternatives are strategically allocated alongside equities, fixed-income securities, real estate, and alternative investments. This diversified approach is designed to minimize risk and provide flexibility to adapt to evolving market conditions.


Tax Efficiency

High-net-worth individuals grasp the significance of tax planning in preserving their wealth. Cash equivalents, such as municipal bonds, are often favored for their tax advantages. These investments offer liquidity while providing tax-free interest income, a critical component of an overall tax-efficient wealth strategy. Cash equivalents can safeguard investments, which might mean fewer capital gains or losses to report, potentially lowering your overall tax liability.

It's important to note that while cash alternatives offer certain tax advantages, they may not provide the same potential for returns as riskier investments. Investors often balance the need for stability and tax efficiency with their overall financial goals and risk tolerance. Additionally, tax laws and regulations can vary, so individuals should consult with a tax advisor to understand the specific implications of their particular situation.


Opportunistic Borrowing for Leverage

Contrary to conventional wisdom, the affluent may strategically use borrowed funds to amplify their investment positions. Leveraging low-interest-rate loans against their liquid assets enables them to deploy more capital into potentially lucrative investments, aiming for returns that exceed the cost of borrowing.

In addition to using low-interest loans against their assets, wealthy individuals might also explore creative financial tools to boost their investments. For example, some could use margin accounts provided by brokerage firms, allowing them to borrow funds for investments beyond their current capital. This method has the potential to increase returns on successful investments. However, it's essential to be cautious and fully understand the associated risks as it also has the potential to magnify losses. Successful investors carefully assess and manage risks before employing borrowing strategies. By smartly using borrowed funds, these individuals aim to improve their investment portfolios and take advantage of market opportunities aligned with their wealth goals.


Wrapping it Up

These savvy individuals expertly balance immediate cash needs, long-term investments, and emergency reserves. Their smart use of different financial tools, like tax-efficient options and strategic borrowing, shows a commitment to stability and adaptability. As the financial world changes, they navigate it skillfully with dynamic strategies, blending liquidity, risk control, and smart opportunities.

The more you earn, the more critical each decision about your wealth becomes. Let your money serve you. As you move through life’s phases, our team can help you see the possibilities of what your money can help you accomplish. We want you to enjoy your wealth today while feeling good about your level of preparedness for tomorrow.

To learn more about how we can serve as your trusted financial partner, reach out to us today.



Diversification does not guarantee investment returns or eliminate risk of loss including in a declining market.

Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can cause a bond’s price to fall. Credit risk is the risk that an issuer will default on payments of interest and/or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

Income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).

Margin borrowing may not be appropriate for all investors. When you use margin, you are subject to a high degree of risk and can lose more than your initial investment.