How the Rich Get More Liquid Assets — and How You Can, Too
Written by
Cindy Lamothe
Edited by
Ashleigh Ray
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Building significant wealth isn’t just about working hard and investing. It’s also about increasing liquid assets, a crucial aspect of financial planning that many overlook.
As Abid Salahi, finance expert and co-founder of FinlyWealth, explained, “Our data shows that clients with a higher liquidity ratio — typically 20% to 30% of their total assets — are better equipped to handle financial emergencies and capitalize on investment opportunities.”
Keep reading to find out what Salahi considers some of the most effective strategies for boosting liquid assets.
Optimize Your Cash Management
One of the most overlooked strategies for increasing liquidity, according to Salahi, is optimizing cash management.
“High-yield and money market accounts can offer significantly higher returns than traditional savings accounts,” he said. “For instance, while the average savings account APY hovers around 0.35%, some high-yield accounts offer rates as high as 4% to 5%.
By simply moving $50,000 from a traditional savings account to a high-yield account, Salahi said you could earn an additional $2,000 or more annually.
“This extra yield effectively increases your liquid assets without requiring additional savings,” he added.
Utilize Laddered Certificates of Deposit (CDs)
Another strategy Salahi recommends is CD laddering.
He said, “CD laddering is an excellent strategy for maintaining liquidity while earning higher interest rates.”
By spreading your money across CDs with different maturity dates, you ensure regular access to your funds while benefiting from higher interest rates.
Salahi gave this example: “… you might split $100,000 across three-month, six-month, nine-month and 12-month CDs. You can use or reinvest the funds as each CD matures, depending on your needs.”
This approach, he explained, typically yields 0.5% to 1% more than a standard savings account, which can significantly boost your liquid assets over time.
Invest in Highly Liquid ETFs
According to Salahi, exchange-traded funds (ETFs) offer a great balance of liquidity and potential returns. Specifically, broad-market ETFs are less volatile than individual stocks and easily converted to cash.
“I often recommend allocating a portion of your portfolio to ETFs tracking major indices like the S&P 500,” Salahi suggested. “These can be sold quickly if you need cash, and they offer the potential for higher returns compared to savings accounts.”
Over the past decade, Salahi said the S&P 500 has averaged annual returns of about 10%, significantly outpacing inflation and traditional savings vehicles.
Maintain a Bond Ladder
Similar to CD laddering, Salahi explained that a bond ladder can provide regular income and maintain liquidity.
“You ensure a steady cash flow stream by purchasing bonds with staggered maturity dates,” he said. “… you might invest $100,000 equally in bonds maturing in one, two, three, four and five years. [And] as each bond matures, you can either reinvest or use the funds.”
This strategy, he said, typically yields 2% to 3% more than savings accounts, effectively growing your liquid assets while providing a predictable income stream.
Use a Cash Management Account
Cash management accounts, offered by many brokerages, combine the features of checking, savings and investment accounts. These accounts often provide higher interest rates on cash balances and allow easy transfers between cash and investments.
“I’ve seen clients earn up to 2% more on their cash holdings by using these accounts compared to traditional bank accounts,” added Salahi.
Leverage Lines of Credit Wisely
“While not a liquid asset per se, a home equity line of credit (HELOC) or a securities-backed line of credit can provide quick access to cash when needed,” Salahi explained.
These can be particularly useful for high-net-worth individuals with significant real estate or securities assets.
“By having these lines of credit in place,” he continued, “you can maintain your investment positions while still having access to liquidity when opportunities or emergencies arise.”
Regularly Rebalance Your Portfolio
When it comes to rebalancing your portfolio, Salahi said it isn’t just about maintaining your desired asset allocation. It’s also about liquidity.
By considering your financial needs when rebalancing, you can adjust and reallocate assets to work toward increasing (or decreasing) liquidity.
Salahi said, “This maintains your risk profile and can improve your overall liquidity position.”
Utilize Tax-Loss Harvesting
According to Salahi, tax-loss harvesting can effectively increase liquidity without significantly altering your investment strategy. You’re essentially selling investments that have experienced a loss, so you can offset capital gains taxes and potentially lower your tax bill.
“The cash saved on taxes effectively increases your liquid assets,” he continued. “In my experience, strategic tax-loss harvesting can save clients anywhere from 0.5% to 2% annually, depending on their tax bracket and investment performance.”
Consider Peer-to-Peer Lending
For those comfortable with a bit more risk, Salahi recommended they try peer-to-peer lending platforms, as they can offer higher yields with relatively short-term loans.
While less liquid than savings accounts, he said these investments typically have three- to five-year terms and can offer 5% to 7% or more returns.
“By staggering investments across different loan terms, you can create a regular stream of repayments, effectively increasing your liquid assets over time,” Salahi added.
Automate Your Savings
Last but not least, automating your savings is crucial for consistently increasing your liquid assets. To do this, Salahi recommended setting up automatic transfers to your high-yield savings or investment account with each paycheck.
“Even small, regular contributions can add up significantly over time,” he said. “I’ve seen clients increase their liquid assets by 15% to 20% annually simply by automating their savings and taking advantage of dollar-cost averaging.”
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