School me on investing...

Discussion in 'General' started by noles19, Nov 8, 2017.

  1. thrak410

    thrak410 My member is well known

    Yup... I'm still holding, lets see what happens. :D
     
    BigBird likes this.
  2. SuddenBraking

    SuddenBraking The Iron Price

    Your post just reminded me of a question I had - has anyone here messed around with portfolio loans at all? It's what rich people do to avoid paying either short term or long term gains taxes on their securities.
     
    BigBird likes this.
  3. Boman Forklift

    Boman Forklift Well-Known Member

    Hmmm, how does that work?
     
  4. SuddenBraking

    SuddenBraking The Iron Price

    Lets you take a secured loan against your portfolio so you don't need to cash out equities and pay cap gains and/or short term income taxes.

    Say you've got a $1MM portfolio in stocks, but you want to buy an asset for $100K. You could take that money out of your portfolio, but you'd have to take out a larger amount than $100K because you're going to owe taxes on any realized gains.

    Instead, you could take out a portfolio loan and pay a ridiculously low interest rate (because it's fully secured with extremely liquid assets) and allow your equities to remain untouched (thereby not interrupting the flow of compound growth).

    https://www.cnbc.com/2021/07/13/portfolio-loans-can-be-one-way-to-make-debt-work-in-your-favor.html

    I was actually thinking about it in the context of retirement; let's say you've got a $4 million next egg that you think will last you ~30 years. Instead of depleting that, you could leave it untouched and every few years take out a portfolio loan on it. I haven't thought through all the reasons that would or wouldn't work but it was something I was kicking around last night.
     
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  5. Dave Wolfe

    Dave Wolfe banned club

    I know a lot of Netjets customers used portfolio loans to buy their aircraft shares
     
  6. Jedb

    Jedb Professional Novice :-)

    In addition to what you've mentioned, the loan allows you use of the money without taking out the principal, which the government view as income.
    Not talking about the tax on the stock gain, but if you are retired and cash out 401K, that's viewed as income, which you need to pay tax on.
    The loan mitigates the need for both.

    Cash out $50K of investments: Pay Capital gains on the increase, and the $50K counts as income.
    Loan of $50K allows you to use the cash and avoid the above.

    The only challenge in the loan while retired scenario is the re-payment on the loan.
    It also leaves a potential liability for your heirs (if any) to have an outstanding loan.
     
  7. Sweatypants

    Sweatypants I am so smart! S-M-R-T... I mean S-M-A-R-T!

    i never even considered this as a thing. very interesting. how do they (the bank or institution) justify the loan as far as amount v. total portfolio assets? or, risk and volatility of those assets? or, your ability to take the loan and then also clear out your investment portfolio after?
     
  8. SuddenBraking

    SuddenBraking The Iron Price

    What I read in a few links was 70% is around the max you can get.

    I'd guess for widely available assets they'd use some measure of standard deviation (but I'm just spitballing). One of the articles mentioned that asset type certainly comes into play with regards to how much of your portfolio is borrow-able against.

    Another article mentioned something about the lender being able to take your securities in the event of a default, so I'm guessing some kind of power of attorney-ish agreement would be in play as well as negative covenants written in to the agreement.

    Here's the first ad that popped up when I google'd "how to get a loan on my stock portfolio" (funny, they're a couple of doors down from where I used to work back in my asset management days).

    https://biltmoremarginlending.com/

    upload_2021-11-16_14-59-33.png
     
    BigBird likes this.
  9. HPPT

    HPPT !!!

    Who is our JMIA holder? Ouch.
     
  10. auminer

    auminer Renaissance Redneck

    Founded in Nigeria. What could go wrong? :confused:
     
  11. Tristan

    Tristan Well-Known Member

    Goldie was the cheerleader... I'm hanging onto 46 shares (pure coincidence)
     
  12. Jedb

    Jedb Professional Novice :-)

    If I have $4m in verified mutual funds/stocks/bonds, and I ask you for $200K, with a portion of my portfolio as backing, you should be getting out the pen as fast as you can before I walk down the street. Even if you (generically) do a rolling 52 week low point for the evaluation, you should be getting out the pen damn fast.

    Regarding 'clearing out the portfolio' I'm guessing the portion that's put up as collateral is put into some kind of escrow account that can't be touched for the duration of the loan. I'm also guessing there's a "top up" clause which says if the value drops below the value of the balance, you need to add $$. No tax implications here, as it's just moving from Account XYZ to the escrow account.
     
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  13. BigBird

    BigBird blah

    I just can't get over it.... RIVN $175+
     
  14. rymerc

    rymerc Active Member

    If you really want in, I'm sure it will dip after hours or at opening tomorrow. Who knows how high this will soar before it crashes
     
  15. BigBird

    BigBird blah

    it's going to $500 by January...WSB is invested
     
  16. Jed

    Jed mellifluous

    I bought 60 at 120 and am up 40% as of today. If I were smart I'd sell 42 shares to cover the initial purchase and let the rest ride. I may put a stop loss limit on the position but right now I'm going to let it ride.
     
    BigBird likes this.
  17. MELK-MAN

    MELK-MAN The Dude abides...

    my bank that i have some municipal bond fund assets with (not much interest, but tax free income and super safe) after a prior building sale, said instead of doing a 1031 exchange into another property if i sell more buildings, or do a 1031 exch. fund (pays about 6% but your money is LOCKED UP for 5 years), i could just do a low interest line of credit on what i will have to pay uncle sam in cap gains tax, and then invest that money and make 5-6% (relatively low risk), so netting about 2.5% but i will pay the lower cap gains tax today by a bit, going up 5% in 2022 it sounds like.. one option. that way i have more money working for me instead of just paying the cap gains and having that much less earning interest.
     
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  18. BigBird

    BigBird blah

    So has investing become who has a "good" idea? Fisker/Lucid have also been going through the moon, and I don't see them making many, if any cars either.

    So basically it's all one big pump until they make it?
     
  19. Jed

    Jed mellifluous

    Investing is still investing and I have plenty of long positions.

    Trading is trading and I do that daily. Rivian is a trade for me, not an investment. Once options are available puts may be a good play.
     
  20. BigBird

    BigBird blah

    Options came out today
     

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