How to Access Cash Without Selling Your Investments: The Risks and Rewards of Portfolio Loans

Funding major purchases or opportunities. Real estate purchases, business investments or other large expenditures may arise when market conditions are favorable. In these situations, an SBLOC may provide flexibility and speed while allowing the investor to keep their investments intact.

Securities-based lending is commonly used for purposes such as real estate financing, business financing, tax obligations, education expenses and other significant purchases.

Avoiding unnecessary liquidation. Selling investments to raise cash can disrupt a long-term strategy and create unintended tax or market consequences. Beyond potential taxes, investors may find themselves out of the market during periods of strong performance.

An SBLOC may help maintain exposure to long-term growth opportunities while addressing immediate cash needs.

When borrowing against your portfolio may not make sense

Securities-based lending can be a valuable tool, but it’s not appropriate for every situation.

Long-term spending needs. Using borrowed funds for ongoing lifestyle expenses warrants careful consideration. An SBLOC may be more effective as a source of strategic, temporary liquidity than as a permanent solution to recurring cash-flow challenges.

For long-term spending needs, selling assets or pursuing other financing options may be more appropriate.

When market volatility would create discomfort. Borrowing capacity is tied to the value of the pledged investments. If the value of pledged securities declines, the lender may require additional collateral or repayment of a portion of the loan.

If those requirements are not met, the lender may sell pledged securities, potentially on short notice and without advance consultation regarding which assets are sold. Investors who are uncomfortable with those possibilities may prefer other sources of financing.

When rising borrowing costs could be a concern. While SBLOCs can offer competitive borrowing rates, they typically feature variable interest rates and may involve interest-only payments.

As interest rates change, borrowing costs can increase, potentially affecting cash flow and the overall cost of financing. Investors should understand how rate fluctuations could affect their repayment strategy before establishing an SBLOC.

When repayment is unclear. As with any borrowing strategy, there should be a clear understanding of how the debt will be managed and repaid. An SBLOC should be evaluated within the context of a comprehensive financial plan, not simply because borrowing capacity exists.

Why professional guidance matters

Effective use of securities-based lending often involves guidance from banking, lending and wealth management professionals who understand the client’s broader financial picture.

An adviser can help evaluate questions such as:

• Is borrowing more advantageous than selling securities?

• What are the potential tax considerations?

• How does the loan affect overall cash flow?

• How might different market scenarios affect the pledged portfolio?

• Does the strategy support long-term financial goals?

An SBLOC is more than a lending solution. It’s a financial planning decision that should be evaluated within the context of an investor’s broader goals.

A tool, not a shortcut

Accessing cash doesn’t always require selling investments. For some investors, an SBLOC can provide liquidity while preserving a long-term investment strategy.

But as with any financial tool, it should be used intentionally, with a clear understanding of both its benefits and its risks.

When incorporated into a comprehensive wealth strategy and guided by experienced advisers, borrowing against a portfolio may help investors pursue today’s opportunities without losing sight of tomorrow’s goals.

Related Content

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.