Why Do High-Net-Worth Investors
Need Ready Income?

Why do affluent investors (often growth-oriented entrepreneurs) also need ready income from low-volatility income-producing investments?

Many of our affluent investors have much of their net worth in illiquid assets like private stock, real estate, or their businesses. They have no immediate access to these assets. But they often need cash flow for opportunistic investing and charitable efforts, as a hedge against inflation, protection from taxes, emotional comfort, and empowering their purpose. Is this you?

High-net-worth investors, particularly many of ours, often do not need regular income to pay monthly bills. They may also have minimal family or business debt, have created substantial retirement funds for themselves and college accounts for their children and grandchildren, and have provided an emergency fund of at least six months to one year of their yearly income. They consider these assets and accounts untouchable for any other purpose.

A portfolio with ready income may be a valuable allocation strategy. Income-generating investments can provide necessary liquidity, especially when selling them would be disadvantageous. In addition, reinvesting income can compound your returns and potentially provide significant long-term growth.

Emotional Comfort

Liquidity provides psychological comfort. As an affluent investor, you may fear being cash-poor–having a high net worth but low cash reserves. Regular income from cash distributions can give you a sense of security, particularly during market declines.

Income-generating, low volatility investments can provide a cushion, both physically and emotionally, against potential losses in other parts of your portfolio. Ready income is a risk mitigation strategy.

Opportunistic Investing

Do you want to diversify into new and long-term growth opportunities? Such investments could be private equity deals, venture capital, or new or existing business ventures with friends, family, or business associates. You may also want to invest in entrepreneurship and economic empowerment initiatives. These may include startup incubators or small business development projects.

But you need ready cash.

Some of our high-net-worth investors have become emotionally attached to long-held assets over time. These could be stocks or real estate owned by their family for generations. However, this emotionally fueled illiquidity may obstruct paths to new investment opportunities.

Passionate Investing

Would you prefer to use your excess cash flow (in the form of monthly income distributions) to fund philanthropic efforts that animate you? Volunteering is an opportunity to use your skills and knowledge to benefit others. You may want to teach, support a church or hospital, or coach a youth sports team. You can also use your distribution income to fund schooling or infrastructure projects.

Portfolio Rebalancing

Or would you like to use income distributions to rebalance your portfolio without selling less liquid assets? Over time your portfolio may have grown imbalanced, meaning some allocations have grown more (or less) than other sectors or securities. With ready income, you can quickly re-allocate portfolio positions aligned with your current risk tolerance and long-term goals.

Inflation Protection

Income-generating investments may also help protect against inflation.

Low inflation of 2% or less is not the historical norm; today’s higher inflation is a problem for high-net-worth individuals and families who don’t like to see the purchasing power of their assets erode.

Even 3% annual inflation over the long term destroys capital. To equal the purchasing power of $1 million in investable assets today, you’d need over $1.8 million in 20 years with an average annual inflation rate of 3%. If yearly inflation averages 5% over the next 20 years, you’d need over $2.6 million to have the equivalent buying power of $1 million today. Source: Consumer Price Index (CPI).

While past performance is not prologue, today’s inflation rate is currently more than 2%, and these hypothetical examples do not reflect the actual performance of the CPI or an investment.

Ready Income to Empower Your Purpose

We generally work with two types of high-net-worth investors: those with assets and liquidity; and those who have assets but little liquidity. Whatever your type, empowering your purpose with readily available income can be an effective strategy for opportunistic and passionate investing, rebalancing your portfolio, protecting against inflation, paying taxes, and providing peace of mind.

About Solidarity Capital

Solidarity Capital is a boutique asset management company and investment fund manager focused on delivering monthly income to investors using a proprietary investment strategy. Based in Lehi, Utah, Solidarity is led by our founders, Jimmy Mortimer, Jeff McClean, and Zach Whitchurch, entrepreneurial thinkers and doers.

About Jeff McClean

Jeff McClean, Managing Partner of Solidarity Capital, brings a unique perspective to the Solidarity Capital investment team. Jeff leads fundraising, fund administration, investor relations, product development, and contributes to the strategic investment direction of Solidarity Capital. He earned a bachelor’s degree in accounting from Brigham Young University–Idaho, and a Juris Doctor, with honors, from the University of Texas School of Law.