Financial planning is synonymous with long-term planning for most people–retirement, estate planning, etc. While there’s enormous value in long-term conversations, I personally think people aren’t thinking enough about our financial planning over the next 3-5 years.
Ironically, this can be harder than long-term planning. Why? Well, because most people know they want to retire. They plan for it. But what about some of those other financial plans that “might happen?”
A couple of examples of these conversations:
- Weddings
- Vacation properties
- Rental properties
- Assisting aging parents
- Cushion for transition to self-employment
Each example is something that might happen, and if it does, it’s not an insignificant investment. It’s easy for these goals to creep up on you. It really comes down to “what ifs” and your desire for those bigger purchases or investments.
In these cases, my go-to approach is, “Well, if you’re thinking about it, let’s start planning for it.”
Leveraging Portfolio Positions
In some of these cases, you may be considering selling off some stock assets. While this can be a good way to bolster your cash, there is a strategically best way to do it.
We’ve seen investors sell off assets based on what they need but entirely miss the tax event they triggered. Another investor may have accounted for the tax bill, but they may concentrate their sales into one year without regard to the massive jump in their tax bracket.
If liquidating stocks is a part of the plan, we want to take a thoughtful approach to how and when we approach those sales. A few examples:
- Spreading those sales out over multiple years
- Selling losses to offset gains
We don’t necessarily need to dismantle the portfolio and move everything into cash and wait. But we do need to ensure we have the right pools and pockets of liquidity available if this goal becomes a reality.
Piles of Cash vs. Access to Cash
Another important aspect is standby liquidity, such as portfolio access lines or home equity lines of credit. These serve as additional pools of liquidity. I think of them as insurance. If we carry a significant home equity line of credit or have a portfolio access line based on our investable assets, we have a large bucket of liquidity available. These lines shouldn’t cost much to maintain but give us immediate access when needed.
At a moment’s notice, you could tap into these funds for unexpected or opportunistic purchases—whether that’s an investment opportunity or a real estate deal. You’d have the ability to act quickly.
Even if you keep the debt, you’ve got time after the transaction to figure out how to pay it off. For example, will we pull from the portfolio, or will we refinance the real estate with longer-term debt?
Lean Into The Planning Process
If you look out over the next 3-5 years and have possible financial targets, we want to invite you to lean into the planning process. The planning process can help you optimize your financial options and avoid inefficient decisions.
At Bernardo Wealth Planning, we’re here to help you create a complete view of your financial world–and create a life that is incredible through smart financial decisions.