Need to raise cash quickly? Hopefully, you already have an emergency fund in case of unexpected expenses and liquidity reserves in order to take advantage of opportunities. However, real life is often messy.
If you're an investor, you have options. If you find yourself in a position of needing to come up with emergency money, there are several possibilities available to you that might not be possible for non-investors.
Some of these options, such as borrowing against your securities, should be a last resort.
1. Create a Temporary Line of Credit
If you have been diligent and disciplined, the odds are good that you have built up a respectable brokerage account outside of your retirement accounts. If you’ve been at this long enough and have a decent job, it's probable that you’re in the six-figure range; e.g., a 40-year-old that began investing $5,000 per year at 22 after graduating and landing his first job would have just shy of $228,000 assuming an average rate of return.
Were you to need emergency funds, it’s possible to temporarily borrow against your securities to create a margin loan, withdrawing the cash.
Raising money this way is not without risk. Not only is your interest rate floating and subject to change, but if your stocks and other investments fall below a specific threshold, your broker could sell your assets to pay back the loan without contacting you.
Many brokers will give you the courtesy of a call (known as a margin call) to deposit more funds so this doesn’t happen, but they aren’t required to do this by law. This could either lock in losses or trigger big capital gains taxes, depending on the success you’ve had with the positions in your account. Worse yet, you have no control over which stocks are sold; that is entirely at your broker’s discretion.
People have funded startups by writing a check against an account that held assets such as a brokerage account. This can provide the company with working capital until it generates the funds to repay this amount.
2. Get a Second Job
Sometimes the fastest and most effective way to generate immediate funds is to take on a second job. One close family member of mine found that by working the night shift at a mid-scale restaurant, she was able to generate more than $30,000 per year in tips above and beyond her day job. Her skill was connecting with people and she found a second job that leveraged that talent.
Many argue they don’t have time. The internet has changed all of that. You can freelance from Starbucks. Creativity often pays off more than just putting in more hours, so as tired as the phrase may be: Think outside the box.
3. Take Out a 401(k) Loan or Hardship Withdrawal
This should only be done in extreme cases, but it is possible to borrow against the assets you’ve built up in a retirement account. There are very specific rules to follow or else you could find yourself paying huge tax penalties.
If things should get worse before they get better, you could have inadvertently wiped out your retirement, causing yourself much bigger financial problems down the road.
4. Redeem Your Rewards
Most of us have some type of rewards-based credit card, such as the venerable American Express. Over the past few years, you might have rung up some pretty hefty reward balances, especially if you pay for things such as gas and groceries on your card.
Check into your program and consider redeeming your points for gift certificates or merchandise from retailers that can free up cash.
5. Sell Your Gold
It may sound cliché, but it works. Almost every household has excess gold in the form of jewelry. With gold prices soaring for the past few years, there are plenty of businesses that are happy to take that scrap and melt it down, giving you a big fat check in exchange.