We recently had a conversation with Steve and Cathy. Cathy is an entrepreneur and Steve works for a government agency. Steve’s paycheck was halted in the recent government shutdown. They had gone through their savings accounts, and we were looking at tapping into some of their investments. Oh, and they save $2,000 per month in addition to the contributions to their retirement plans.
They asked me if it made more sense to keep investing the $2,000 per month and subsequently liquidate investments, or to just suspend their monthly investments temporarily.
Here’s how we think through the question of liquidating investments versus reducing savings:
First, Assess the Situation
- Is the shortfall temporary? If it’s just a few months, suspending contributions is often the least disruptive option.
- Do you have an emergency fund? Use that first if available.
- Will selling investments trigger taxes or penalties? Retirement accounts can come with steep costs if tapped early. Appreciated assets can trigger capital gains taxes.
Why Pausing Contributions Makes Sense
Halting monthly investment savings—like automatic transfers to brokerage or retirement accounts—can free up cash without touching your portfolio. It avoids capital gains taxes, keeps your long-term strategy intact, and gives you breathing room.
When Liquidating Investments Might Be Necessary
If the shortfall lasts longer or is more severe:
- Prioritize selling taxable investments with minimal gains.
- Avoid touching retirement accounts unless it’s a true emergency.
- Be mindful of market conditions—selling during a downturn can lock in losses.
A Quick Example
Let’s say you invest $1,000/month and need $3,000 to cover expenses. Skipping three months of contributions avoids taxes and preserves your portfolio. Selling $3,000 of stock, on the other hand, might trigger capital gains and reduce future growth.
Bottom Line
Start by pausing contributions. Revisit your budget. Only liquidate investments if necessary—and do it strategically. Your future self will thank you.
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/ SIPC.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.