With the pandemic has come job loss for many people and now cash flow has become incredibly important. While there are ways to increase gross and net income, there are also some adjustments that can be made to your non-retirement investment portfolio.
Here are a few things you may want to consider right now to increase your cash flow:
- Take dividends and interest as cash. In a non-retirement account, many investors have these funds automatically reinvest, which increases basis and drives up the number of shares of the stock or mutual fund. However, tax is still paid on interest and dividends in the year they are received, reinvested or not. By taking these as cash, the investor is increasing their cash holdings which is a good thing if cash is needed. This decision can always be reversed later to reinvest.
- Take mutual fund distributions as cash. Like dividends and interest, the investor pays tax in the year received and many people choose to automatically reinvest. Distributions normally come out in December for mutual funds. They are the embedded capital gain within the fund that has occurred during the year when the fund management has sold holdings higher than what they bought.
- Harvest some tax losses now rather than later in the year. Not only will this boost cash holdings, it also allows the taxpayer to use the losses against gains for tax purposes or against earned income. If boosting cash holdings is not the goal, this strategy allows the investor to buy another holding that may increase value in the future.
- If a Certificate of Deposit is approaching maturity, this may not be the time to automatically renew it for another term of time. Interest rates have dropped in the last three months and it may not be a wise financial decision to get another CD, especially if cash is needed.
Although the adage is “buy low, sell high;” your current situation may require you to rethink what is right for you. The above suggestions may help you through these tough economic times. Remember you can always reverse any account changes you make at a later date, when you are feeling more comfortable with cash on hand.