November November 2026
Financial Planning Update:
The Optimization Trap

Idle money is a problem to solve, but so is the opposite. A large tax bill, a surprise opportunity, or an unexpected life event can force you to sell assets at the wrong time, and that costs real money.

Forms of Liquidity

Liquidity is often seen as simply cash in the bank and overlooked as an essential part of your financial health.

You are most likely familiar with operational liquidity – what you need to run your life or business without borrowing – payroll, taxes, maintenance, the unexpected quarter, etc.

Then there is strategic liquidity – capital that isn’t deployed yet, not because you lack ideas, but because you are preserving the ability to act when something real appears.

Debt can be liquidity too. A well-structured line of credit, a HELOC with capacity, a business facility you haven’t drawn – these are all real forms of strategic liquidity.

For some, debt can be more efficient than holding cash outright. If you have reliable, accessible borrowing at a reasonable rate, deploying capital and maintaining a credit facility may be the stronger choice for you than sitting on reserves earning 4% (at least that’s the current rate). The next question then becomes whether that facility is reliable and whether it will still be available the moment you need it most.

None of this is an argument against putting capital to work. A legitimate expense timed for a deduction is good planning.

The trap is more specific: optimization under pressure, where the visible savings drives the decision and the liquidity cost it creates doesn’t show up until you need that capital for something else. By then, both costs are real. Only one was visible when you decided.

A Layer of Liquidity Nobody Plans For

There is a layer of liquidity need commonly unaccounted for: tax liquidity.

When a significant event occurs – a business sale, a real estate closing, a large distribution, a property that finally clears – you need cash available to pay the tax on that event. This may sound obvious until you work through what it actually means.

If your liquidity was already deployed going into that event – in another property, another investment, another business decision timed for a deduction – the tax bill then can become a forced borrowing event or a forced sale of something else. Neither is catastrophic but they can be both expensive and avoidable.

Another degree to consider here is that a large liquidity event in a high-income year can push you into brackets and thresholds you weren’t planning for. This triggers additional taxes that aren’t obvious to account for in one-off scenarios like this, such as depreciation recapture, net investment income tax and state taxes.

The tax on the event now quietly becomes larger precisely because you weren’t liquid enough to manage the year around it. Planning for a liquidity event means planning for the tax on it, separately and in advance, before the asset moves.

This can make a meaningful difference in net profit. When federal capital gains, depreciation recapture, net investment income tax, and state taxes stack in the same year alongside elevated ordinary income, effective rates on a sale can reach 40% or higher.

The same transaction, structured across a different year or alongside intentional offsets, can land meaningfully lower. That gap is not tax avoidance – it is tax planning, and it requires liquidity to execute.

Intention Over Inertia

Cash without a purpose is not a strategy. It is an oversight. Nobody decides to let it sit for a decade, it just happens, and the opportunity cost compounds the whole time.

The question worth addressing at the end of every year is not how much you have, but what is your liquidity. Cash, an untapped HELOC, a pledged asset line, a business facility with room – all of these are options. None of them are useful if you don’t know which ones you have access to, whether they will be there when you need them, or what’s the preferred order of tapping into them.

The goal is not to stop optimizing, but rather to know precisely what you are trading away when you do and to make that trade on your own terms. If either of those questions – where your liquidity lives or whether it will hold – doesn’t have a clean answer, we are happy to start that conversation with you.

Wishing you all a wonderful start to the holiday season. Cheers!