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The richest people borrow against their stock (2021)

forbes.com

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Re: The richest people borrow against their stock (2021)

#21

Post by bdangubic »

gruez wrote: post #16
bdangubic wrote: post #5

Earlier quoted context omitted.

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...

>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 ...only up to 250k if you're in the US. https://www.irs.gov/taxtopics/tc701

There's ways around that through 1031 exchange but yea, only first 250k come home free. my argument still stands though that comparing HELOC to borrowing against stock is a poor analogy

Re: The richest people borrow against their stock (2021)

#22

Post by lxm »

bdangubic wrote: post #7
doe_eyes wrote: post #2

By 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…

What's your take than on HELOC?

Re: The richest people borrow against their stock (2021)

#23

Post by TMWNN »

mixmastamyk wrote: post #3
doe_eyes wrote: post #2

By 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.

What taxman22 says makes me wish I kept my holdings in my Schwab account. (I guess there is nothing stopping me from doing an asset transfer.)

But I agree with you about margin borrowing's interest rate not being that amazing, although it is of course cheaper than most credit cards. Vanguard is, as you said, 11-13%. https://investor.vanguard.com/client-benefits/margin?msockid...> By contrast, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.

Re: The richest people borrow against their stock (2021)

#24

Post by TMWNN »

taxman22 wrote: post #6
mixmastamyk wrote: post #3

Earlier quoted context omitted.

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%.

Is Schwab known for being unusually low with its rate for this product? Vanguard is 11-13%, consistent with what mixmastamyk said. https://investor.vanguard.com/client-benefits/margin?msockid...>

In any case, my Amex line of credit charges 6%, and I am preapproved for an Amex personal loan for 8.98%. I presume others on HN can get comparable or better.

Re: The richest people borrow against their stock (2021)

#25

Post by eadmund »

bdangubic wrote: post #7
doe_eyes wrote: post #2

By 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…

Why should it be illegal? It’s not a realised gain. It has to be paid off … with money which has to come from somewhere (and be taxed as income or realised gains or whatever).

What reason do you have for wanting it to be illegal, other than not liking it?

Re: The richest people borrow against their stock (2021)

#26

Post by zooq_ai »

bdangubic wrote: post #7
doe_eyes wrote: post #2

By 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…

[flagged]

Re: The richest people borrow against their stock (2021)

#27

Post by theogravity »

They're loans so where do they get the income to pay off the interest?

If I attempt something like this via Interactive Brokers (which generally has the best rates), it would cost me 5-6%:

https://www.interactivebrokers.com/en/trading/margin-rates.p...

I'd figure if you're a billionaire, with multi-millions in collateral, the rate is probably significantly lower, but they still need to pay down the interest.

Re: The richest people borrow against their stock (2021)

#28

Post by betaby »

lxm wrote: post #22
bdangubic wrote: post #7

Earlier quoted context omitted.

> 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…

What's your take than on HELOC?

Capital gains on a primary residence is not taxes in most the cases anyways, so HELOC changes nothing tax wise.

Re: The richest people borrow against their stock (2021)

#29

Post by __turbobrew__ »

creato wrote: post #11
1123581321 wrote: post #8

Earlier quoted context omitted.

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.

If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).

My bank will give me a 6 figure line of credit at prime+0.5% because they see all the assets I have (savings, cash, investments, mortgage). The line of credit is indirectly secured against all of the assets my bank can see.

Should I be taxed when I use the line of credit my bank extends to me?

Re: The richest people borrow against their stock (2021)

#30

Post by 1123581321 »

creato wrote: post #11
1123581321 wrote: post #8

Earlier quoted context omitted.

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.

If that's what was happening you'd be right but it isn't. Credit cards have high rates and low limits for a reason: they are unsecured credit. Loans with collateral are secured by the collateral, and it makes some sense that should be considered a realized gain for that collateral (or loss for that matter).

No difference if secured. You could add to my list of examples a home equity loan. Should that be taxed as a partial sale of the house? No.

Ask your credit union about the variety of loans they offer to regular people.

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