Why Is Now a Good Time to Borrow?

Craft a liquidity management plan well in advance to achieve financial flexibility.

With economic uncertainty brought on by COVID-19, adding liquidity to your balance sheet can give you financial flexibility—and peace of mind.  

Now may be a good time to increase your financial flexibility with a well-crafted plan to efficiently and easily access liquidity—and to have it in place prior to when you might need it.

With today’s historically low interest rates, borrowing outright or establishing a line of credit for future use can add to your peace of mind, given the uncertainties in the current economic environment.

You might also consider establishing a credit line as part of a broader liquidity strategy to help you manage cash flows for personal or business matters; meet unexpected expenses; take advantage of an opportunity, or fund time-sensitive financial obligations, such as tax payments—all without disturbing your long-term investments.

Read more of Ryan Bristol’s thought leadership.

As with any well-thought-out wealth management strategy, plans to integrate credit should be tied to your financial goals, with income and outflows carefully analyzed to ensure they are aligned with your overall financial picture. 

Financial Flexibility

The goals of any liquidity management strategy are to help you: 

  1. Avoid a forced asset sale when market conditions are unfavorable.
  2. Gain financial flexibility, so you can enjoy your lifestyle, take advantage of new opportunities, and advance your legacy and other wealth plans. 

However, adding liquidity to your balance sheet is not simply a matter of setting aside funds in a cash account (though setting aside cash for emergencies or unexpected expenses may be part of your plan).

Sophisticated lenders can help you structure liquidity management strategies—using a combination of a credit line, short-duration fixed income, and other cash instruments—to address your needs and personal circumstances.

The “Bucket” Approach

So how much liquidity is right for you now? To help you think it through, we recommend first creating a framework. Think of allocating your resources into financial “buckets,” and deciding how big a percentage you may want to allocate to the different areas of your life. Commonly used buckets are liquidity (cash), lifestyle, and legacy. Learn more about buckets.

Would having a financial cushion help you sleep more soundly at night? If yes, you may want to create a liquidity bucket designed as a psychological safety net. Or perhaps you have more assets than needed for your lifestyle. If yes, taking advantage of historically low interest rates to boost returns or gifting strategies in your legacy bucket would make sense.

While the liquidity bucket can be a back-of-the-envelope calculation, the lifestyle and legacy buckets are more nuanced and you should seek professional advice. Once you have a detailed view of your cash-flow requirements, your J.P. Morgan team can help you structure a liquidity plan. Included in that analysis could be portfolio stress testing to see how your investments are likely to perform under various potential market conditions, including a market downturn. 

One size does not fit all when it comes to adding liquidity to your balance sheet.

Shield or Spear

One size does not fit all when it comes to adding liquidity to your balance sheet. You can use liquidity as a shield to help protect your wealth. Or it can be your spear—a source of ready resources when you want to achieve a specific goal, such as when unexpected opportunities materialize. Or both—without having to liquidate assets to meet needs or fund opportunities, or keep a higher than desired literal amount of cash on hand.

Much depends on where you are in your life and what you want to achieve. Perhaps you’d like to:

  • Pay taxes or meet time-sensitive obligations, such as charitable contributions, without disturbing your investment plans
  • Make opportunistic investments during down markets
  • Bridge a funding gap to cover lifestyle expenditures or fund big-ticket purchases, while waiting to receive funds from a bonus, asset sale, or other income source
  • Purchase real estate, and having ready access to funds can give you a buying advantage in a competitive market
  • Amplify returns, for example, by investing the proceeds of a residential mortgage; record low rates currently available may make this an attractive option, however, these low rates won’t last indefinitely
  • Transfer wealth—applicable federal rates (AFR) also are at a historical low. As this rate by law must be applied to intra-family loans, today’s low rate can help you transfer more wealth to your heirs, possibly sooner than originally planned. Your heirs, in turn, could invest the loan proceeds.

For U.S. taxpayers there is potentially an additional benefit: Interest payments on loans used for investment purposes may be tax deductible.

Learn more about J.P. Morgan Private Bank’s approach to wealth management.

We Can Help 

Again, the key is to make a plan well in advance of needing access to funding. Ask your J.P. Morgan team for help designing a liquidity plan that makes sense for you.

JPMorgan Chase Bank, N.A. Member FDIC
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