The richest people borrow against their stock (2021)
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Re: The richest people borrow against their stock (2021)
#2By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth.
The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your holdings and possibly leave you on the hook for more. The difference is that Elon may be diversified enough to survive, while less savvy margin-surfers might not.
Re: The richest people borrow against their stock (2021)
#3By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…
Yes, margin can be dangerous at times and is not that cheap. About 6% over fed rates, or 11-13% right now. Over $500k you'll probably get a better deal.
Re: The richest people borrow against their stock (2021)
#4Spoiler: the same way you can access your home equity without selling your house.
Re: The richest people borrow against their stock (2021)
#5Spoiler: the same way you can access your home equity without selling your house.
With just a "slight" difference in that you do not have pay taxes on the gains you made on your house (what you paid vs. what it is worth now) when you sell it and you are paying HEFTY property taxes on your current home worth each and every year. Very poor analogy...
Re: The richest people borrow against their stock (2021)
#6By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…
Yes, margin can be dangerous at times and is not that cheap. About 6% over fed rates, or 11-13% right now. Over $500k you'll probably get a better deal.
Schwab Pledge Asset Line (PAL) is SOFR + (2.40% to 4.4%). SOFR today is 4.81%.
Re: The richest people borrow against their stock (2021)
#7By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…
> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth.
This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borrow against it."
Unrealized gains should never be taxed. However, as soon as you try to use it as realized in ANY way you should be taxed immediately.
Re: The richest people borrow against their stock (2021)
#8By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…
> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borr…
That does not track for me. If someone has $20k in Schwab and chooses to use their credit card instead of selling stock and paying cash, I don't think they should have to pay taxes on that or suffer a criminal penalty. Same for taking on a car loan or a mortgage.
Re: The richest people borrow against their stock (2021)
#9By borrowing against their holdings. The framing is deceptive. You can do this too: there is no requirement to have billions in collateral. If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. The gotcha is market risk. If there's another crash akin to the housing crisis - and there will be - the bank will liquidate your ho…
> If you own stocks, your brokerage will lend you money at a very low rate, secured by the equity - typically up to about half of your stocks' worth. This should be illegal of course... You cannot for the purposes of paying taxes say "hey, I don't actually have this money, this is unrealized gains" and then turn around (to brokerage house or anyone else) and say "hey, look I actually do have this 'money' - lemme borr…
> as soon as you try to use it as realized in ANY way you should be taxed immediately
You're trying to define a rule based on intent. That's doable. We do it all the time. But it tends to get messy, fast. How do you differentiate investment leverage from realizing gains through borrowing? If you track distributions, does a commensurate reduction in contributions count? What if the borrowing is done against the portfolio at large, or unsecured?
Re: The richest people borrow against their stock (2021)
#10Spoiler: the same way you can access your home equity without selling your house.
With just a "slight" difference in that you do not have pay taxes on the gains you made on your house (what you paid vs. what it is worth now) when you sell it and you are paying HEFTY property taxes on your current home worth each and every year. Very poor analogy...
> and you are paying HEFTY property taxes on your current home worth each and every year
Is there any jurisdiction where the assessed value of a home is anywhere close to its market value? (You're still correct. But OP's observation, that this is the stock equivalent of a reverse mortgage, is moreso.)