Offering Exclusive High Net Worth Portfolio, Estate and Tax Protection Strategies developed over 30+ years
Offering Exclusive High Net Worth Portfolio, Estate and Tax Protection Strategies developed over 30+ years
As a high net worth or ultra-high net worth investor, you must have undoubtedly come across the term ‘liquid net worth,’ meaning that you understand the value that it holds. Having a net worth of billions of dollars does not ensure that you are able to spend those billions in any way you want. However, if you have a liquid net worth of billions of dollars, that will be a different story. With so much money at hand, you need to make sure that you allocate it wisely. A financial advisor or wealth manager can assist you in this aspect. If you have liquid assets worth more than $10 million, you should wisely choose your financial advisor by reading through our exclusive, free guide.
This article will discuss the importance of knowing your liquid net worth, how to calculate it, and what it means for your financial status. Pillar Wealth Management can give high net worth, and ultra-high net worth families exclusive access to one of the best resources, capabilities, and expertise that our financial advisors have to offer. Our elite wealth managers are experts in proactively helping clients who have 5 million to 500 million dollars in liquid investable assets with their wealth management, asset allocation, and portfolio performance. Schedule a free consultation with us to obtain unconflicted financial advice and a fully customized planning service!
Liquid Net Worth Meaning
If you liquidated everything you ownimmediately, including your house, car, and other investments the amount of cash you have on hand would be your liquid net worth.
Due to transaction costs, taxes, and fees, the amount you receive as your liquid net worth will be less than your net worth. For example, if you need to sell your house or business quickly, you will receive less than the market value. In order to determine your liquid net worth, you first need to know which of your financial assets are liquid assets. A wealth manager can help you identify which assets you can sell off in the case of an emergency. To get professional advice from our experienced wealth managers or team of financial experts, you can schedule a free consultation with us.
In simple terms, liquid assets refer to those assets that can be readily and easily converted to cash with little impact on its value. As an affluent investor, you likely have numerous high-value assets in your portfolio. If you would like to improve the performance of your investment portfolio, you can refer to our Performance Guide.It is designed specifically to help multi-millionaires protect their wealth and ensure that their portfolio achieves a strong performance.
What Can Be Included in Your Liquid Net Worth?
If you’re new to the financial world, you might have many questions such as, “Does liquid net worth include house?” or “Which investments can be considered a liquid asset?” Not all assets are liquid, and differentiating between liquid assets and non-liquid assets will help you determine an accurate liquid net worth.
Liquid assets are considered equivalent to cash since their value usually remains more or less the same when sold. There are a few requirements that an asset must meet in order to be considered liquid, such as being established in a market. It must have numerous interested buyers, and the ownership of the asset itself should be easily transferrable. This makes them the most basic and commonly used type of assets by both consumers and businesses.
Cash is a liquid asset since it is often on hand and can be readily accessed. Many companies use cash as a legal tender to settle their current liabilities. This would include your savings, the money in your checking account, or your money market account since the cash be withdrawn immediately. Other liquid assets include cash equivalents, such as:
– Bonds and U.S. Treasuries
– Mutual funds
– Money-market funds
– Stocks and marketable securities
Mutual funds are considered liquid assets as they consist of a portfolio of investments managed by a broker or fund manager. Various investors pool in their money and invest in multiple financial securities such as stocks and bonds. Investors can choose to sell off their shares at any point in time and receive their money within a few days. Knowing which investment products to buy can be tricky, which is why we recommend that you enlist the services of a financial professional. Our wealth managers have experience working with investment portfolios of high net worth and ultra-high net worth individuals, making them skilled to give you the best, unbiased advice. Contact us to schedule your first meeting.
Assets that take long periods of time to be liquidated are known as non-liquid assets. If you sell off non-liquid assets, it can take months for you to receive the cash from the sale; therefore, it is not suitable for emergencies.In particular, personal possessions cannot be sold at their original value, which results in you gaining only 25 to 50% of their worth in cash. Examples of non-liquid assets include:
– Real Estate
– IRA and other Retirement Account Assets
– 401(k) Assets
With real estate, the process of finding an investor, negotiating with them on the selling price, and setting up the closing for the sale can take quite a long time. In such a case, you might be forced to sell the property below market value. Combine this with the transaction costs and fees you will need to pay, and it results in significant financial loss. In order to protect your ultra-high net worth financial status, you need to make sure you don’t squander your wealth by making hasty decisions. Our book, The Art of Protecting Ultra-High Net Worth Portfolios and Estates – Strategies for Families Worth $25 Million To $500 Million, can advise you on how you can safeguard your wealth and protect you and your family from financial ruin.
With many accounts, such as your 401(k) or IRA account, you will need to pay a penalty fee if you wish to withdraw earlier than your retirement age. The only exception is a Roth IRA, which allows you to instantly withdraw your cash at any time, without a penalty fee. Therefore, your
Calculating Your Liquid Net Worth
Now that you understand what liquid net worth means, you might be wondering, “How do you figure out your liquid net worth?”
You can follow the formula:
Liquid net worth = liquid assets – liabilities
In the first step, you will need to calculate the sum of all your liquid assets. You have the option of completely excluding all non-liquid assets from your calculation, or you could include them with the discount percentage attributed to them. For example, the discount percentage for real estate assets could be 25%, 15% for cars or vehicles, 25% for 401(k) accounts, and 25 % for IRA accounts.
In the second step, you will need to calculate the sum of all your liabilities, which would include your mortgage, any debts you owe, and loans that need to be paid off. When you subtract the two values, you will get your liquid net worth. The numerical value you end up with represents the cash you will have on hand if you sold off your assets.
Net Worth vs. Liquid Net Worth
Liquidity and net worth are two different terms, which have different values and meanings. So, what is the difference between net worth and liquid net worth?
Your net worth shows an overall picture of how much money you have. It is the difference between your assets and liabilities, and this includes liquid and non-liquid assets. On the other hand, liquidity represents how much cash you have access to on short notice. While your net worth is a function of your value in assets, your liquid net worth is a function of the assets you hold.
Not all assets can retain their market value when they are being sold, which affects your liquid net worth. In contrast, your net worth can increase or decrease depending on the value of your non-liquid assets as well. If you have a high net worth but a low liquid net worth, you will not be able to spend as much as you think. A high liquidity allows you to have more fluid finances. When you have millions of dollars in liquidity, you can benefit from the advice of a financial advisor in wealth management. Our comprehensive guide caters to ultra-high net worth individuals who are looking to hire the best financial advisor.
Hence, when you see people with a net worth of billions of dollars, it does not necessarily mean that they have that much money in their savings account. Most of it is tied up in fixed assets, such as long-term investments, corporate holdings, or real estate.
Why Does Your Liquid Net Worth Matter?
Your financial stability is directly reflected in your liquid net worth, meaning that it shows how prepared you would be in the case of an emergency. In any unforeseen circumstance, your liquid net worth is what will cover your expenses. For example, unemployment, early retirement, or any situation that causes you and your family to face overwhelming expenses. If you have low liquidity, you will end up needing to sell off your assets at a lower rate.
Can You Increase Your Liquidity?
There are ways that you can increase your liquid net worth. Creating a budget to help lower your expenses can be one way to increase your net worth. The right financial advisor can help you manage your expenses. Learn more about finding the best financial advisor for your monetary needs in our Ultimate Guide.
Alternatively, you could look for ways to increase your income, either by negotiating a better salary, starting a side business, or taking up more investment opportunities. Investments help you increase your net worth in the long run, as they increase every year. A strong investment portfolio will give you higher returns with minimal risk. If you want to learn more about optimizing your portfolio for maximum growth, read our guide.It highlights five critical shifts you should make to your portfolio to enhance its performance.
Choosing your investments wisely can boost your liquid net worth, meaning that you can gain more revenue by choosing the right asset allocation. Similarly, maximizing your portfolio’s performance ensures that you safeguard your wealth and enhance it wherever possible. A financial professional can be of assistance in this regard since they are familiar with diverse investment options, strategies, and methods that work in your favor.
In particular, wealth managers at Pillar Wealth Management work with a team of expert financial professionals to ensure that all your financial aspects are covered, including tax accounting, estate planning, and insurance planning. We provide fiduciary and unbiased investing advice and planning services, along with individual wealth management analysis to clients with 5 million to 500 million dollars in liquid investable assets. If you would like to receive direct access to our top wealth managers and financial advisors, schedule a meeting with us today!
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