Many who contemplate major purchases get tripped up by assessing the best source of what is often significant liquidity. Whether pursuing a passion with a vacation home, aircraft or yacht, or a business goal such as direct investments or starting a new business, a framework for vetting needs and available sources of liquidity can help ensure that new opportunities do not undermine existing goals.
A 2022 study of affluent investors conducted by The Northern Trust Institute asked respondents where they would source additional liquidity if needed to fund a major purchase. More than 75% indicated they would sell existing assets; far fewer said they considered borrowing. But tapping into leverage can be a valuable strategy to fund liquidity needs under the right circumstances.
Borrowing against your portfolio, rather than liquidating assets, can help keep your investment strategy intact and also help you avoid selling risk assets under unfavorable circumstances. Consider the following example:
What is the optimal way to fund a major purchase or investment? The answer is as varied as individual investors and opportunities. Still, 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 Northern Trust’s framework for funding major purchases, visit The Northern Trust Institute and download the full paper.
Explore more insights for business owners at The Northern Trust Institute.