Hi everyone, I’m exploring the concept of Securities-Based Lending (SBL) and would love to hear your thoughts or experiences with this strategy. For those unfamiliar, SBL involves using your stock portfolio as collateral to secure a loan. This allows you to access liquidity without selling your investments, thereby avoiding capital gains taxes and potentially allowing your investments to continue to appreciate. I’m particularly interested in understanding: 1. The typical minimum portfolio size needed to make this strategy effective. 2. The risks and benefits you’ve experienced or observed with SBL. 3. How this strategy compares to traditional liquidation or other financing options in terms of tax efficiency and investment growth. Have any of you used this approach? What was your experience like, and would you recommend it to others? Any insights on navigating the risks, especially with fluctuating market values? Thanks! E6 / 9YoE / ~800k
Instead of SBL I would recommend margin loan from interactive brokers. I used a 200k loan towards down payment of house. Regarding fire... Leverage say 1:2 where for $100 you borrow $100 and invest in spy500 might be a decent strategy when you are very young in 20s.. but slowly you may have to reduce leverage as you grow older. The only way to get more returns is taking more risk aka leverage as long as you are up for it
Early 30s now. Thank you! I remember when I opened the IBKR account I decided to disable margin as I didn’t feel confident about it, but maybe now I’d reconsider. Any suggestions/links on how to start gradually with leverage?
Well margins are always risky. Better strategy is as someone already suggested is if you have a heloc for like 300k, instead of using it take 300k margin loan from IBKR and buy spy500 index. In the worst case you get a margin call you can take funds from heloc and satisfy it. Leverage above that is at your own risk tolerance.
FYI I’m pretty sure most SBL don’t allow you to buy equities. I know this is true for Schwab, not sure about other brokerages
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Yes and this is the way for most UHNW individuals, but it can be effective for anybody starting with even a few thousand in a brokerage. The key is to use the loan to buy additional productive or hard assets, such as investment properties, blue chip stocks, bitcoin, etc. Don’t use this method to buy a car or a vacation. Assets then appreciate over time. Your new assets also contribute to paying back loan. Continue borrowing more. Never sell. Rinse and repeat. Soon enough you have a compounding machine. Risks? What if you get a March 2020 sell off in the broader market? A black swan. You need an additional line of credit of some sort not marked to the original brokerage portfolio to act as your “insurance”. Margin call? No problem. Draw money immediately out of your HELOC for a few weeks, personal line of credit, credit card cash advance, etc then you’ll weather a margin call during even the worst storms.
Thank you! I’m curious about the application of this strategy in a FIRE context. Given that FIRE emphasizes reducing financial risk and achieving stability, do you think SBL could be effectively and safely integrated into a FIRE plan? I’ve never heard it in this context. Is it because of the inherent risk?
Nothing risked, nothing gained. However there are things like I mentioned you can do to safely hedge your risk.