RAISING LIQUIDITY...SELLING THE CROWN JEWELS
In our series of articles on wealth management, we have looked at how wealth is created through savings, business, careers, real estate and stock market investments. The buildup of wealth is closely linked to the accumulation of lifestyle assets (homes and holiday homes as an example) which are a function of your success elsewhere. A diversified portfolio also normally includes items such as cars, art, jewelry, gold, coins and other collectables.
Once, however, the wealth creation cycle is completed, we turn from being accumulators to consumers and the need for income and liquidity becomes a priority. So just how does a portfolio generate enough cash, and what kind of investment strategies do we need to implement to make sure we can always pay our monthly bills?
A SHORTFALL IN INCOME
Every now and again, a well-planned and diversified portfolio of dividend-paying shares, property, and fixed-income investments disappoints due to unexpected market disruptions. When an investment strategy focused on generating income for living expenses fails to create the yields needed, it is necessary to look at liquidating some of your capital assets.
But selling assets requires careful planning and market expertise to ensure you are selling the right assets, for the right reasons, and for the best returns. It is important to understand exactly why you are selling and what you hoping to achieve. Here are some points to consider before deciding which assets to liquidate.
SELLING YOUR MOST TREASURED POSSESSIONS
Generating cash from a portfolio necessitates a hard look at the balance sheet across all asset classes, including lifestyle assets, collectables, stock market investments, and other physical assets. When the need for cash dictates you sell a prized possession like an investment property, a holiday home,gold coins, an expensive piece of jewelry, or a valuable piece of art, you have to detach yourself from the emotional reasons for holding onto it.
These investments often fail to provide a decent yield or bring in any income at all. Once you make the rational decision to sell, based on your historical returns, there’s often no better asset to sell to provide for your income needs.
CASH FLOW PLANNING
To prevent any future negative outcomes from the sale of assets, our approach to ensuring steady cash flows for our clients through their portfolio, has always been to start by planning the most likely path of future expenses (both regular and ad-hoc), future cash inflows, and then plot these against the investment portfolio where reasonable rates of return on investments have been applied. As the income on most assets is not predictable and can reduce on the back of prevailing market conditions, the appropriate strategy is to identify assets to sell, before the need for cash flow arises.
Understanding your personal roadmap, and selling the right assets at the appropriate time, will ensure you always have enough cash to maintain your lifestyle in the manner you have become accustomed.