At Rolling Hills Advisors, we require all our clients to maintain a personal balance sheet—an organized summary of the assets they own and the liabilities they owe. While this is a standard requirement for publicly traded companies, many individuals have never taken the time to put it on paper. We believe this simple but essential step provides powerful insights and helps guide better financial decisions.
One of the main reasons we encourage clients to create a personal balance sheet is so we can work together to prioritize where funds should be directed—toward growing assets or reducing liabilities—in order to improve long-term financial outcomes.
In the years following the financial crisis, low interest rates and strong capital and real estate markets led many affluent investors to focus heavily on building assets. Borrowing was inexpensive, and the value of purchased assets often appreciated faster than the cost of the debt—an economic scenario known as arbitrage.
However, in today’s post-pandemic economy, higher interest rates have altered the landscape. The assumption that investment returns will consistently outpace borrowing costs no longer holds as true. This has prompted many investors to take a closer look at their balance sheets and rethink how to prioritize savings versus debt reduction.
At Rolling Hills Advisors, we regularly update our long-term asset return expectations to help inform us of these decisions. These forecasts, though not perfect, play a key role in helping us guide clients on how best to allocate capital.
For instance, if projected returns in commercial real estate are expected to be constrained and borrowing costs are in the 8–10% range, we might recommend deploying capital elsewhere. Similarly, if a client’s adjustable-rate mortgage is resetting to 6–7% and their portfolio’s expected return is below that range, paying down the mortgage may be the better financial move.
In short, debt can be a powerful tool—just as it is for corporations and governments—but when the cost of debt exceeds the expected return on assets, it’s often wiser to reduce debt obligations rather than grow investments.
As we continue to navigate this higher interest rate environment, your team at Rolling Hills Advisors is here to help you evaluate and optimize your personal balance sheet. If you, or someone you know, would benefit from a full balance sheet review, please don’t hesitate to reach out.
This material is provided for informational and educational purposes only. It does not consider any individual or personal financial, legal, or tax circumstances. As such, the information contained herein is not intended and should not be construed as individualized advice or recommendation of any kind. Where specific advice is necessary or appropriate, individuals should contact their professional tax, legal, and investment advisors or other professionals regarding their circumstances and needs.
There is no assurance that any investment, plan, or strategy will be successful. Investing involves risk, including the possible loss of principal.
Investment Advisory Services are offered through Mariner Platform Solutions (MPS), an SEC Registered Investment Adviser. Rolling Hills Advisors and MPS are not affiliated entities. For additional information about MPS, including fees and services, please contact MPS or refer to Form ADV Part 2A, which is available on the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Registration of an investment adviser does not imply a certain level of skill or training. MPS does not provide legal or tax advice.
