What is current asset repositioning?
Repositioning of current assets refers to using certain assets you now own as a potential source of cash reserve funds. These are assets that are either in cash form (e.g., a savings account) or that can be converted to cash relatively easily. Converting to cash may entail selling, redeeming (as with bonds) or other means. Because a cash reserve, by definition, is a source of emergency funds, you must convert assets you wish to use that are currently not in cash form. It is far wiser to do this before a crisis hits, when you can take the time to consider your decisions.
Review assets that could be repositioned to help build a cash reserve
Before listing the current assets you might consider as potential funding sources, you will want to briefly review which types are most appropriate. Doing so often leads to consideration of assets that might otherwise be overlooked.
Tip: Keep an open mind at this stage, and think creatively. You are merely looking for the possibilities. Only later will you decide which assets, if any, to use as a cash reserve.
Some people hold substantial amounts of money in ordinary savings accounts. While holding a limited amount of money in a basic savings account is often desirable for liquidity, you generally should consider whether there may be other ways to manage at least a portion of that money.
Special purpose savings
Many savings accounts are established with a special goal in mind. Common savings objectives include education, vacation, travel, major gifts, the down payment on a home or payment for a major purchase. When the timing of these goals is not critical, part or all of the savings already accumulated to date in these accounts might be repositioned to a cash reserve. The special purpose account could then resume its growth.
Maturing certificates of deposit, term deposits, and other fixed-income investments
In a fixed-income investment, you effectively loan your money for a specified term, at the end of which the borrower agrees to repay you the original amount (principal) plus a stated amount of interest. Fixed-income investment products come in many shapes and sizes. They include bonds; Treasury bond, notes, and bills; and certificates of deposit (CDs) and other types of term deposits (savings vehicles that require that funds be deposited for a specific length of time). When you have a fixed-income investment that is about to mature or whose term is about to expire, the principal and interest might provide yet another source of funds for a cash reserve.
Questionable or marginally performing investments
Many of us have one or more investments that represent money we could put to better use. Perhaps it is an investment that has had an extended lackluster performance. Maybe it is some inherited stocks that show little chance of significant appreciation. Selling such investments can enable you to make better use of their present value in either a cash reserve or a more productive investment.
Caution: These funding sources may involve payment of incremental taxes, such as sales and capital gain taxes that must be taken into account when estimating their value.
Prepared by Forefield Inc. Copyright 2010. Contact Conway Tax Advisors Group, Ltd., Peter J. Conway, president, 380 N. Terra Cotta Road, Suite H, Crystal Lake IL 60012; 815-788-1600; firstname.lastname@example.org.
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