Beyond the Checking Account: Five Sources of Liquidity Every Investor Should Understand

Ask most investors where their liquidity comes from, and the answer is usually “my checking account.” That holds until a real need shows up: a home purchase, a tax bill, or a business opportunity that will not wait. At that point, the checking account is rarely enough on its own, and the real question becomes which other source to tap and what it will cost you to tap it.

Every source of liquidity has a price attached. Sometimes it’s an interest rate. Sometimes it’s a tax bill. Sometimes it’s less obvious, like the risk of a maintenance call or a smaller paycheck later on. None of that makes a source of liquidity bad. It just means the source has to match the need. You would not use a credit card to buy a home: the rate is too high, there is no real payment structure, and the credit limit is probably too low anyway. A mortgage solves that problem because it is built for exactly that purpose.

The same logic applies to the rest of your balance sheet. Beyond cash in the bank, many investors have access to other sources of liquidity: a taxable brokerage account, a home equity line of credit, a securities-backed line of credit, and a margin loan. Each one works differently, each one carries its own costs and risks, and each one fits some situations better than others. Here is how to think through them.

Taxable Brokerage Assets (Part 1): Selling Shares

Taxable assets are often a significant source of liquidity in any investor’s toolkit. Buying stocks over time, letting them grow, and strategically selling when needed can protect you from otherwise costly or restrictive loans. However, selling stocks is rarely “free”; thus, consideration must be given to the tax impact of selling appreciated investments. For taxable brokerage assets, there are multiple “cost layers.”

Layer 1: Capital gain assets are taxed more favorably than ordinary income assets when the assets are held long-term (longer than 1 year). The long-term capital gains tax brackets are 0%, 15%, or 20%. However, capital gains brackets are marginal, not flat. A large gain stacks on top of your other income, so only the portion that falls into the top bracket is taxed at 20%. For clients already above the top threshold before any gain is added, the full gain is taxed at 20%. For others, part of it may land in the 15% or even 0% bracket, which lowers the effective rate.

For 2026, the federal long-term capital gains brackets are as follows:

To be clear, the dollar figures above refer to ordinary income plus capital gains; these are not strictly capital gain figures. 

Layer 2: Many states impose their own capital gains tax. In North Carolina, capital gains are taxed at the same rate as ordinary income: 3.99% in 2026. But in other states, capital gains taxes can work or scale differently.

Layer 3: Net Investment Income Tax (“NIIT”) can be owed in addition to federal capital gains taxes and state capital gains taxes. NIIT is a 3.8% surtax for high earners on passive investment income. For individuals, this tax starts at $200,000 in modified adjusted gross income. For those filing taxes jointly, the threshold is $250,000. These income thresholds are not adjusted for inflation, meaning more taxpayers become subject to NIIT each year.

A taxpayer in the highest federal long-term capital gains tax bracket in North Carolina (meaning their ordinary income alone already exceeds the top bracket threshold, so the entire additional gain is taxed at the top marginal rate) can pay as much as 27.79% in long-term capital gains taxes. When thinking about your taxable brokerage account as a source of liquidity, this total tax is considerable. Selling $250,000 of stock that you paid $100,000 for ten years ago (i.e., a $150,000 taxable long-term gain) could create, in isolation, a $41,685 tax bill. So, while taxable assets are absolutely a potential source of liquidity, it’s not the same as withdrawing from your checking account.

The work that our Investment and Advisory teams do for our clients helps identify opportunities to offset these gains with capital losses, which are carried forward indefinitely into the future. Examples of this offsetting activity are tax-loss harvesting, direct indexing, and equity long-short strategies. This means that while the $41,685 tax bill from the above example exists in isolation, it may not necessarily be what is owed at tax time.

Taxable Brokerage Assets (Part 2): Box-Spread Financing

A box-spread loan is a way to borrow against a taxable investment account without selling assets, keeping the portfolio invested and avoiding a capital-gains event. Instead of a traditional loan, the financing is created using offsetting S&P 500 index options that produce a fixed borrowing cost at institutional rates. The result is typically a materially lower, fixed rate (very close to the risk-free rate, similar to T-bills) than a standard margin or a securities-backed line of credit (SBLOC), in exchange for a fixed maturity (that functions like a zero-coupon note) and added complexity.

Example using a six-month period:

• Receive $98,000 today (via the mechanics of the options strategy)
• Owe $100,000 at expiration, six months from now
• The difference of $2,000 is the “interest” cost, which is about 4.2% annualized

Box spread loans are best suited to larger, planned, medium-term needs like a real estate bridge, a known tax bill, a capital call, or refinancing higher-cost debt (1 year or longer). It makes the most sense for clients who are comfortable with leverage and want to stay invested. However, it’s not without risks and considerations. 

If there is enough volatility, you could be required to put up additional collateral or sell holdings. In practice, this can force you to realize the very capital gains you were trying to avoid in the first place. 

Finally, the interest cost is realized as a capital loss, which is not the same as tax-deductible interest expense. Because of this treatment, it makes a lot of sense for investors who have capital gains that can offset against capital losses. 

There are additional nuances at play when determining whether a box-spread loan makes sense, and your team at Verum can walk you through the options.  

Taxable Brokerage Assets (Part 3): Margin Loans

Margin loans are cut from the same cloth as SBLOCs, but with different mechanics and use cases. A margin loan is built directly into an account rather than set up as a separate lending facility like an SBLOC. Because margin is a feature that can activate with just an account signature, it can be very useful for short-term, last-minute lending needs. Because margin loans are governed by Regulation T and FINRA, they typically have a lower borrowing capacity when compared to SBLOCs. 

As with other loan options, collateral is necessary. Margin loans turn an account’s underlying positions into a leverage mechanism. The most apparent risk is a margin call, which happens when the value of the collateral falls too far. When this occurs, a custodian can immediately cover the shortfall by liquidating positions, or you can post additional collateral, commonly stocks or cash. As with SBLOCs, covering a margin call by selling portfolio positions can create the very tax consequences you were trying to avoid in the first place.

Margin interest rates fluctuate frequently. While there’s no set repayment schedule, interest accrues daily and is typically paid monthly, most commonly through a deduction from a cash position. If cash isn’t available, unpaid interest capitalizes, meaning you could end up paying interest on interest. Note that margin interest is only tax deductible when the loan proceeds are used to purchase investments that generate taxable income; using it to fund something like a down payment or a renovation does not qualify.

Home Equity Line of Credit (“HELOC”)

HELOCs are great to have when a homeowner has enough equity in their home because they can be used for a wide variety of applications. HELOCs are a line of credit collateralized by the equity in your home, and it sits with a $0 balance until used. If you use it and pay it off, you can tap into it again. HELOCs can be confused with a home equity installment loan, which is a loan that gets disbursed to the borrower in full and cannot be used again once paid off, among other differences. 

The maximum amount you can receive as an available line of credit differs from bank to bank and is calculated based on a loan-to-value (“LTV”) percentage. Let’s use an 80% LTV as an example. At an 80 percent loan-to-value cap, a $1.5 million home with a $750,000 mortgage would support up to a $450,000 HELOC. Calculated as appraised value * 80%, then subtract the mortgage balance. 

When a HELOC is used for purchases or expenses, interest begins accruing on the amount borrowed. Many banks price HELOCs based on the prime rate, adjusted by a stated margin (either a discount or premium to a base rate). For example, let’s say the prime rate is the bank’s base rate, and it’s at 6.5%. The bank applies a 1% premium, so the borrower’s effective rate would be 7.5%. Because a HELOC typically sits behind the primary mortgage in repayment priority if the home is sold or foreclosed on, it carries more risk for the lender. That added risk is one reason HELOC rates are generally higher than primary mortgage rates.

For many HELOC products, there is an interest-only period lasting years before principal payments need to be made. And interest can be tax-deductible if the funds are used to buy, build, or substantially improve a home. So, if you’re thinking about using the HELOC to fund significant renovations, the after-tax cost of a HELOC loan may be lower than the stated interest cost. 

Because of this unique interest-only loan structure, HELOCs are great solutions for bridge financing. A common bridge financing scenario is one where you want to close on a new home before you sell your existing home. Using the HELOC to put a down payment on your new home allows you to close, and then the HELOC, which is a lien on your old home, is paid off when the old home sells.

A HELOC lets you avoid selling investments at inopportune times or triggering potentially significant capital gains taxes, and it reduces stress and strain by letting buyers get the home they want, when they want it — and even start renovations before moving in. 

Because HELOCs are generally easy and inexpensive to obtain, they fall into the “better to have it and not need it” category. 

Securities-Backed Line of Credit (“SBLOC”)

An SBLOC is similar to a HELOC: it’s a revolving line of credit tied to an existing asset, in this case a taxable brokerage account. A borrower can receive a loan backed by the securities they own, making it an attractive option in healthy financial markets. However, unlike HELOCs, an SBLOC is tied to a volatile asset – your investment portfolio. 

When you open an SBLOC, the lender sets two limits: the advance rate (how much you can initially borrow against your portfolio) and the maintenance level (the minimum collateral coverage you must maintain once you’ve drawn on the line). If your portfolio value falls and your loan becomes a larger portion of your account value, you’ll receive a maintenance call. This is a requirement to either deposit more cash or securities or pay down the loan. Both must be done quickly. Here’s how it works using basic figures:

• Portfolio value: $1,000,000
• Advance rate: 40%
• Maximum credit line: $400,000
• You use the full $400,000 to help fund a home purchase

At this point, your loan-to-value (“LTV”) is 40%, which is the full advance rate. Now suppose the market drops 20% across your holdings:

• New portfolio value: $800,000
• Loan balance: still $400,000
• New LTV: 50%

If the lender’s maintenance threshold is 45% LTV, you’re now above it and will receive a maintenance call. To get back to a 40% LTV on an $800,000 portfolio, you’d need to pay roughly $80,000, add back $200,000 in collateral, or some combination of the two.

Because of the market risk inherent in this loan structure, SBLOCs are less favorable for accounts with concentrated stock positions. Concentrated stock is much more susceptible to volatility when compared to home values, for example. 

SBLOCs can offer lower interest rates than other loan types and can vary from lender to lender. Rates are typically tied to SOFR plus a spread, which can decrease with larger lines of credit.

How do we decide? 

None of these five sources are inherently better than the others. A taxable brokerage account is flexible but comes with a real tax bill attached. A box spread loan can be cheaper than a HELOC but is tied to a more volatile asset. A HELOC is cheap to hold but ties your borrowing power to your home’s value. An SBLOC can offer a lower rate than a margin loan but exposes you to similar market risk and maintenance calls while taking longer to set up. 

The right choice, in any given year, usually comes down to three questions: What are you funding? How fast do you need the money? And what are you willing to put at risk to get it? Answering those questions before you need the liquidity, rather than in the middle of a home purchase or a market drop, is what turns a stressful scramble into a plan.

If you want help thinking through which of these sources fits your situation or how to sequence more than one of them, our Advisory teams can walk through the trade-offs with you before a decision needs to be made. 

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

Note: At Verum, we use ‘adviser’ throughout this article. Advisor is also a common spelling in searches and public usage. Adviser reflects our fee-only fiduciary model and aligns the most closely with regulatory language associated with Registered Investment Advisers.