Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Buy, Borrow, Die – Explained

old.reddit.com

Post reply on HN
Print view View original

251–260 of 504 posts

Re: Buy, Borrow, Die – Explained

#251

Post by barbazoo »

treyd wrote: post #217
barbazoo wrote: post #215

Earlier quoted context omitted.

At some point in my life I took a step back to look at my life and how I’m doing and how much I pay for that life. Maybe I’m just incredibly lucky. My conservative expectation is that we all have to start contributing a lot more over the next few decades if we want to maintain our standard of living, otherwise it will just gradually get worse. I hope I’m wrong.

> otherwise it will just gradually get worse. The austerity policies of the neoliberal turn has already caused standards of living among the less fortunate to drop over the last few decades already. The 2008 crisis is when it started to impact the middle class and we're still feeling the impacts 16+ years later.

Now factor in the effects of climate change on many communities over the next decades. Maintaining our infrastructure i.e. lifestyle is going to be much much more expensive.

Re: Buy, Borrow, Die – Explained

#252

Post by gen220 »

doe_eyes wrote: post #196

This kind of an explanation overlooks the obvious issue: you're exposing yourself to asset valuation risk. We don't tax unrealized gains for that exact reason. Let's say you have $10M in in index funds. You don't want to cash out and pay capital gains, so you get a $5M credit line with your stock as a collateral. Then, there's a market crash, your collateral is all of sudden worth just $4M, and you have a bank knocki…

Yes, people have lost a lot of wealth this way in market downturns.

It’s greatly ironic: in the interest of avoiding minor taxes, they lose major assets to their bankers. It wouldn’t surprise me if the same bankers who profit in the downturn from the margin calls are the ones who sold their clients on the strategy.

Any time you go into debt you need to make sure you have a margin of safety. It’s an instrument of some value but it’s a sharp blade to be wielded carefully.

Re: Buy, Borrow, Die – Explained

#253

Post by Bloating »

barbazoo wrote: post #211
TrackerFF wrote: post #85

It always puzzled me how tax-adverse some wealthy people are. I'm not talking about the wealthy people that have 100% of their wealth tied up to company (stock) that they operate - but the wealthy people that are just asset-rich, with zero operational duties. Their wealth is handled by wealth managers, they probably don't even know what they own. But minimizing taxes and hoarding wealth is priority number 1.

Greed is hard to imagine for me, I don’t know what motivates those people. It’s so strange that this behaviour seems to be worshipped by so many people. Why would we do that as a society? Do we need people that hord anything for profit, do they add value to your group?

Is the real issue greed, or your perception of others?

Re: Buy, Borrow, Die – Explained

#254

Post by throwaway22032 »

doe_eyes wrote: post #196

This kind of an explanation overlooks the obvious issue: you're exposing yourself to asset valuation risk. We don't tax unrealized gains for that exact reason. Let's say you have $10M in in index funds. You don't want to cash out and pay capital gains, so you get a $5M credit line with your stock as a collateral. Then, there's a market crash, your collateral is all of sudden worth just $4M, and you have a bank knocki…

You don't take out 50% to buy another asset.

You take out a few % a year to pay for your cost of living. For example, you rent a house, or take out a mortgage and pay for the house over time using the few % a year.

Even ignoring all tax considerations it's often better to buy with a mortgage rather than full cash.

For example a few years back you could get 1-2% mortgage rates in the UK. Right now it's more like 4-5%.

Ignoring tax fun, if you have 10 mil in a share index returning say 7-8% annually and you want to buy a 5 mil house then your best strategy is to sell say 500k for the deposit, then sell just enough to pay the interest + minimum repayment in all following years.

Re: Buy, Borrow, Die – Explained

#255

Post by smsm42 »

radpanda wrote: post #10
2OEH8eoCRo0 wrote: post #5

I don't understand what's in it for the lender in the borrow stage.

Yeah, I felt like the “you have to be wealthy” hand-waving in the quoted section wasn’t very explanatory. Are lenders giving the ultra-rich great interest rates here as a loss-leader to try to attract other business from them? > First, this type of planning is generally not economically feasible unless the taxpayer has a net worth exceeding around $300M. If you’re worth less than that, you’re not going to be able to…

It's an investment for a bank which is middle way between regular loan/bond (where you get fixed interest and 100% of the loan at the end, but no appreciation) and stock share (where you get no fixed interest and all the appreciation when you sell it). The hybrid product would be you get some interest and some of the appreciation, but not as much interest as for a loan, and not all the appreciation at the end. How much would obviously be negotiated depending on interest rates, projected appreciation, and other factors. The point here would be to defer paying the interest (to make the asset owner's life easier while they are alive) while leave enough enticement for the bank to agree to the whole scheme (banks usually don't just buy shares in people's 401k's). I do not know which combination specifically works but it doesn't seem implausible for me for such combination to exist.

Re: Buy, Borrow, Die – Explained

#256

Post by paulpauper »

TrackerFF wrote: post #85

It always puzzled me how tax-adverse some wealthy people are. I'm not talking about the wealthy people that have 100% of their wealth tied up to company (stock) that they operate - but the wealthy people that are just asset-rich, with zero operational duties. Their wealth is handled by wealth managers, they probably don't even know what they own. But minimizing taxes and hoarding wealth is priority number 1.

How is it puzzling to avoid taxes? This is the rational thing to in terms of maximizing one's utility.

Re: Buy, Borrow, Die – Explained

#257

Post by gen220 »

rib3ye wrote: post #222

The thing I don’t get is, what if these guys get margin called in the middle of a big crisis? Don’t they get liquidated like everyone else?

They do get margin called. Usually they don’t do it for all of their assets, but only a portion needed to fund their lifestyles. In huge and persistent downturns there are always a few who get wiped out by this kind of risky behavior, though, if they aren’t well-diversified.

Re: Buy, Borrow, Die – Explained

#259

Post by ta_1138 »

TrackerFF wrote: post #85

It always puzzled me how tax-adverse some wealthy people are. I'm not talking about the wealthy people that have 100% of their wealth tied up to company (stock) that they operate - but the wealthy people that are just asset-rich, with zero operational duties. Their wealth is handled by wealth managers, they probably don't even know what they own. But minimizing taxes and hoarding wealth is priority number 1.

Why do you think that minimizing taxes becomes their #1 priority? What actually happens is that they tell the guy handling your finances to save them some money, and that's their problem. And given their fee structure, they'll go as far as they need to, even though the rich person in question doesn't really think about their taxes all that much.

This is the real multiplicative effect of being really rich: It's not knowing that you'll never be short of money, but how many things you don't even have to think about, because they are handled in your stead.

This is where I'd expect AI will change the world for consumers first: The tasks that now require either a lot of energy, or hiring an assistant or eight, becoming so cheap a good chunk of middle class will be able to afford it.

Re: Buy, Borrow, Die – Explained

#260

Post by throwaway22032 »

littlestymaar wrote: post #190
SoftTalker wrote: post #95

Earlier quoted context omitted.

Why does this puzzle you? It seems like completely expected behavior to me. Most people try to minimize taxes. Who do you know that gladly pays more than they legally have to pay?

> Most people try to minimize taxes No, most people don't care about their tax the way wealthy people do. I ended up in a wealthy family through marriage and I can tell you nobody I my original social circle spent even a fraction of the effort the wealthy do when it comes to taxes.

It's always funny to read this sort of thing because it's like you're so close to connecting the dots but don't quite get it.

Is it not entirely logical that a cohort that actually pays attention to where 20%, 30%, 40% of their money is going ends up wealthier than one that doesn't?

Post reply on HN