Liquidity is a financial term that refers to how quickly investments can be converted into cash. While the liquidity in investment portfolios may be of little concern for young professionals, it is a completely different story for retirees who increasingly need to rely on selling assets for income. To learn more about liquidity and how to achieve the best levels for all life stages, the Financial Post recently spoke with Sightline Wealth Management for insight.
“The closer you are to full retirement, the more likely it is that your investment strategy will need to consider the ability to quickly convert investments to cash in such a way that those assets don’t lose value,” explains Sightline Wealth Management Senior Vice President and Investment Advisor Paul de Sousa.
For investors following the traditional “60/40 rule” of sixty-percent stocks and forty-percent bonds for their portfolios, the underlying assets are considered liquid but it also comes with the risk of not being properly diversified. Instead, Sightline Wealth Management recommends an investment approach that includes alternative investments, even if some of these assets are deemed illiquid.
“An investment advisor can create a staggered liquidity profile in which the notice period, or how much time before the investments can be converted to cash, can range from one month to one and a half years, or even longer depending on the underlying asset,” de Sousa tells the publication. “So, you now have the potential for greater returns and access to predictable cash flow from those distributions. By adjusting the percentage of the overall portfolio devoted to alternatives, you can set a level of liquidity that meets your needs.”
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
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