The Case for Borrowing vs. Liquidating

Cash is king! But is it really? When faced with a large expense or need for short-term liquidity, many investors instinctively look to their portfolio for a solution, but selling investments isn’t the only option. For those with sizeable assets, borrowing against investments or real estate can unlock liquidity – and potential tax efficiency – without sacrificing long-term financial goals.

The Cost of Liquidating

Selling investments may seem like a fast and efficient way to generate liquidity, but there are potential downsides to consider:

• Capital Gains Taxes – selling appreciated assets could trigger capital gains taxes, which could be significant, especially for long-term investors who own low-basis assets.
• Other Tax Impacts – selling appreciated assets could increase your adjusted gross income (AGI); Many tax benefits phase out as AGI increases, or the cost of some benefits, such as Medicare premiums, increase as AGI increases.
• Portfolio Disruption – liquidating assets can disrupt carefully constructed asset allocations or long-term investment strategies in your portfolio.
• Market Timing – Selling assets to generate cash could result in missing future market appreciation.

Timing the market is not only dificult trying to do so can be costly to invetors. The following tble illustrates how missing the "best" days in the market over the past 20 years impacts the average annual return of an initial $10,000 investment. "Best" is defined as the highest one-day return on the S&P 500®.

20-Year Daily Returns Ending 9/30/2025

Source: Bloomberg L.P., PNC. The above data reflects the perfomrance returns of the S&P 500, an unmanged index of 500 common stocks, heavily weighted toward stocks with large market capitalization. Returns on the S&P 500 are price returns; no expenses have been deducted. Past Performance is no guarantee for the future.

Indices are unmanaged, not available for direct investment, and not subject to management fees, transaction costs or other types of expenses that an account may incur.

The Case for Borrowing

As an alternate to selling investments, borrowing against assets you own can generate liquidity without sacrificing ownership. Different types of assets can unlock different borrowing strategies. Among the borrowing options available are the Securities-Based Loan (SBL) and the Pledge Mortgage. As with all lending products, each of these has benefits and risks to consider.

Securities-Based Lending

A Securities-Based Loan (SBL) can offer flexibility as the line of credit is derived from your investments without requiring you to liquidate your investments. An SBL uses your portfolio as collateral, allowing you to raise cash without selling your assets.  As a result, your investments can continue to grow in the market.

Benefits:

• Quick access to funds – easy to implement with lines of credit established often within days.
• Low cost – no set-up costs and interest-only payment options can keep your monthly obligation low.
• Flexibility – borrow as you need liquidity, pay interest only on what you use.
• Ongoing investment – your portfolio remains fully invested with no disruption to your asset allocation and long-term goals.
• Manage tax costs –manage potential tax costs that may result in liquidating investments to raise cash.

Considerations:

• Margin calls – assets may be subject to margin calls if portfolio values drop below required minimums.
• Interest rate risk – loans with variable interest rates may require increased payments if interest rates rise.

Pledge Mortgage

A Pledge Mortgage allows you to finance our home with a lower – or even no – down payment. By pledging marketable securities in lieu of a down payment, you can secure a mortgage with up to 100% financing while remaining fully invested in the market.

Benefits:

• Preserve investments – keep your investment strategy intact and manage potential tax costs that may result in liquidating investments for a down payment on a home. 
• Continue to buy, sell and trade – continue trading assets in the pledged account. 
• Continued income – assets in your account continue to earn interest and pay dividends.
• Help family members – you can pledge your investments to help a family member with a down payment.

Considerations:

• Eligible account types – investment accounts must be held at PNC Private Bank or PNC Investments and are subject to account type and ownership restrictions. 
• Minimum pledge amount – the required minimum pledge amount is determined during mortgage underwriting based on standard mortgage credit guidelines and loan-to-value ratios. 
• Margin calls – assets may be subject to margin calls if portfolio values drop below required minimums. 
• Tax impacts – pledging assets to benefit a family member may have income tax and gift tax consequences.

The Efficiency Advantage

Borrowing against assets is often more tax-efficient than liquidating, especially for long-term investors. Investors who pay mortgage or investment loan interest may qualify for tax deductions which may reduce the net cost of borrowing. Always consult a tax professional to review how borrowing against your assets could affect your tax liability.

The following example illustrates how borrowing to raise cash, as opposed to selling assets to raise cash, can produce a better financial result.  As illustrated below, consider a person who has a portfolio of fully invested assets having a value of $10 million and a basis for tax purposes of $5 million (which, for ease of illustration, is shared pro rata among the assets in the portfolio).  The portfolio returns 6.5% per year, net of fees and taxes. This person requires cash liquidity of $1 million, which will be consumed. This illustration compares selling securities to raise cash with borrowing to raise cash. Assume a five-year, interest only note at 6% interest, annual interest payments with a balloon payment after five years, payments being made from after tax employment income. Cash not used for debt service is added to the investment portfolio. Capital gains are taxed at 15%; Net Investment Income Tax is 3.8%.

Borrowing against your investment or real estate can offer the best of both worlds – access to cash now and continued growth for the future. Borrowing is not without risks, but when used thoughtfully, it can be a powerful strategy for preserving wealth, minimizing tax implications, and creating flexibility.

Your PNC Private Bank Team can help assess whether borrowing fits your financial strategy, and which solution may be best for you and your unique needs.