How do I determine if my liquidity level is appropriate?

At VisionQuest Wealth Management, we often say that if you do not know where your living expenses are coming from, then your liquidity level is insufficient.  The first part of our assessment process starts with a client's cash flow and then we work backwards when setting up the asset allocation.  You protect cash flow by investing in safe, low-volatility investments that provide stability and security.

I think we've all learned from the fall of 2008 that all asset classes have two correlations: one for normal times and another reserved for panics.  As a result of unusual sales pressure, the nominal value of almost all asset classes, other than Treasuries, traded off sharply in the fall of 2008.  In spite of this, we saw many income-producing investments continue to work as intended during this timeframe.

With the current economic policy, VisionQuest Wealth Management has been very cautious relative to debt.  We believe maturities that are intelligently laddered can pave a runway of cash-flow protection and we've found that investors can intelligently stomach short-term volatility when they have certainty of their cash-flow position. 

Private-debt has been a successful strategy for producing consistent cash-flow for investors.  In previous years, we've seen the private debt offerings have yield returns between 8 to 12 percent.  Investing is not without risk and the continued tightening of high-yield spreads is evidence of investors' hunger for yield driven by today's ultra-low interest rates.  Many other firms agree that an allocation to high-yield bonds will improve your portfolio due to its low correlation to other asset classes.  In today's hot bond market, that means covenant-light bonds with fewer protections for bond-holders.  With that being the case, I think you will see more firms choose smaller, niche managers who source all of their own deals (typically private debt investments) and therefore dictate terms to those companies.

VisionQuest Wealth Management is a registered investment advisor.  This material does not constitute investment or tax advice.  Please consult an investment or tax professional about your specific situation.  Past performance is no guarantee of future results.  Investments are: Not FDIC Insured, NO Bank Guarantee; May Lose Value.