Wells Fargo spots a wealth-draining habit in how you pay

Covering a large expense often feels straightforward: sell investments, use the cash, move on. It is a common reflex for many investors trying to avoid debt and stay financially disciplined.

But Wells Fargo's wealth strategists argue that this approach can undermine long-term wealth.

It can trigger capital gains taxes and remove money from a portfolio that would otherwise continue compounding over time.

The result is a hidden trade-off that is easy to overlook in the moment. As major expenses arise, the method used to fund them may matter just as much as the cost itself, turning a simple transaction into a decision with lasting financial consequences.

Wells Fargo says selling investments to cover bills carries a hidden double cost

When you sell appreciated stock, bonds, or mutual fund shares, you lose the asset and also hand the IRS a cut of your profit. Long-term capital gains taxes range from 0% to 20%, depending on your income bracket, and high earners may owe an additional 3.8% net investment income tax on top of that, the IRS notes.

That means a $100,000 gain could cost you up to $23,800 in federal taxes alone before you even address the original bill. The second cost is less visible but potentially larger. Every dollar you pull out of your portfolio is a dollar that stops compounding. The S&P 500 has delivered an annualized return of roughly 10% over the past century, Fidelity data shows.

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A $100,000 withdrawal today could represent more than $259,000 in lost future value over a decade at that pace. The impact can be even more pronounced when withdrawals happen repeatedly over time. Each sale reduces the base that generates future returns, making it harder for the portfolio to recover and grow.

Frequent withdrawals can also distort long-term planning, according to Wells Fargo Conversations.

Investors may underestimate how quickly repeated sales compound the drag on growth. Even small, routine liquidations can meaningfully reduce portfolio resilience over time, given the roughly 10% annualized return the S&P 500 has historically delivered. Maintaining awareness of both taxes and opportunity costs helps preserve long-term investment outcomes.

How securities-based borrowing works as an alternative to selling

Instead of liquidating holdings, investors can borrow against them through a securities-based line of credit, or SBL. The concept works similarly to a home equity line of credit, except your investment portfolio serves as the collateral rather than your house.

Your stocks, bonds, and mutual funds stay in your account, continue earning dividends or interest, and remain positioned for future growth. Trisha Knake, head of securities-based lending at Wells Fargo Wealth & Investment Management, told the firm's Conversations publication that these credit lines typically carry lower interest rates than unsecured loans or credit cards

"Sometimes it may be correct to liquidate or use cash depending on your situation…But if the rate you can borrow money short term is lower than your rate of return on your portfolio's investments long term, that could work to your advantage." said Jessica Kelly, Business Growth Strategy Director, Wealth & Investment Management, Wells Fargo Advisors.

She also noted that lenders generally do not charge setup, nonuse, or cancellation fees, and that borrowing typically does not appear on credit bureau reports.

Depending on the type of collateral, borrowers can access between 50% and 95% of their eligible asset value. U.S. Treasury securities tend to qualify for the highest advance rates, while individual stocks and mutual funds fall on the lower end of that range, the report explained.

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The risks of borrowing against your portfolio are real

Wells Fargo's own experts acknowledged that the most significant risk in securities-based lending is a margin call, which occurs when the market value of your pledged investments drops below the lender's required threshold. If that happens, the lender can force the sale of your securities at potentially depressed prices.

"One downside is the risk of a margin call, in which the lender may require the sale of some or all of a client's securities," Knake warned in the report. A forced sale during a downturn could generate the exact tax hit and portfolio disruption you were trying to avoid in the first place.

Key risks Wells Fargo identified with securities-based borrowing

• Margin calls can force the sale of your investments if collateral values decline, potentially causing adverse tax consequences, Wells Fargo cautioned.
• Rising interest rates increase the overall cost of the loan, which could narrow or erase the advantage of selling, the firm noted in its analysis.
• Borrowers cannot choose which securities are sold if a margin call is triggered, which may result in the loss of their strongest holdings, Wells Fargo stated.
• Restrictions exist on how borrowers can use the funds, including a prohibition on purchasing or carrying additional securities, the report explained.

When paying cash makes more sense than borrowing

Knake told Wells Fargo Conversations that paying cash can be the better path for people who hold significant uninvested reserves and have no plans to deploy that money in the market. She also noted that individuals who are simply uncomfortable carrying any debt may prefer to pay outright.

"If someone has a fair amount of cash and is not planning to invest that cash, that could be the better solution to pay for things, including a car, a house, a child's education, or the expansion of a business," Knake said. She emphasized that there is no universal formula, and the right choice depends on an individual review of assets, liabilities, and goals.

Both Kelly and Knake recommended working with a financial advisor and tax professional before making any decision that involves selling investments or pledging them as collateral. The tax implications of either path vary widely depending on the investor's specific situation and the type of assets involved.

Your next big bill deserves a second look before you sell

The takeaway from Wells Fargo's analysis is that the decision deserves deliberate analysis rather than a reflexive click of the sell button. For investors with appreciated portfolios and short-term liquidity needs, even a brief pause to compare borrowing costs against the combined impact of capital gains taxes and lost compounding could save thousands.

"Individuals have dreams, hopes, and goals, and there are ways to help fund them even during times of market uncertainty," Kelly said. "You just have to decide the best option for you, which can be made clearer by having those conversations with your advisors."

Related: Wells Fargo spotlights the legacy hiding in your property

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This story was originally published April 28, 2026 at 10:47 AM.