Why borrow when you have money?
These survey results did not surprise us, as many clients choose to access credit both to meet their unexpected obligations and to take advantage of timely opportunities—without disrupting their carefully planned portfolios.
Expanding your options
How do you make sure you have cash when you need it? One of the most strategic, yet sometimes overlooked ways is to establish a line of credit based on your portfolio.
We’ve seen clients tap into these lines of credit to:
- Purchase real estate for cash in a competitive market and put permanent financing in place down the road
- Bridge a liquidity gap when they need funds immediately and expect cash flow from a bonus or sale of a business in the near future
- Respond to time-sensitive market and business opportunities
Borrowing to invest
Many sophisticated investors use portfolio lines of credit so their investments can do double duty: let them respond to immediate investment opportunities while staying invested for the long-term benefit.
This approach may makes sense. Our research consistently finds that, historically, one of most effective ways to compound wealth has been to stay invested through economic and market cycles, despite episodes of volatility. (See “Stay invested to stay ahead” below.)
Also, borrowing to invest may help U.S. taxpayers enjoy an important tax benefit: Interest on loans used for investment purposes can be deductible. So, although taxes should never drive investment decisions, it is wise to keep in mind that investing tax-efficiently can save money—which may be particularly helpful in an environment of more modest equity returns.
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