The richest people borrow against their stock (2021)

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 <i>very</i> low rate, secured by the equity - typically up to about half of your stocks&#x27; worth.<p>The gotcha is market risk. If there&#x27;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.

Duh. They need never pay income nor capital gains taxes, as long as their stock valuations keep going up, or as long as they retain enough stock, either way they can always borrow against more stock to service the loans that they took out against their stock, never ever selling any stock nor taking anything more than nominal income.

(2021)<p>This worked a lot better when interest rates were near zero.

Spoiler: the same way you can access your home equity without selling your house.

I borrow against my measly investment portfolio through my local banks &quot;Loan against Securities&quot; account. Interest rate is about 10%.<p>My father was using this feature for past 15 or so years from same bank. We are solidly middle class in India.<p>The only difference between what we do and what rich folk get is probably lower interest rates and higher percentage of loans against the securities value.

There was a story from days of the first dotcom boom when Larry Ellison got a call from his banker complaining that he was overdrawn on his personal account by a billion dollars.

Which in my opinion is a transaction freely entered into by both parties, and is a taxable event. You have gained income from your capital at this point.<p>Wealth taxes do not need to have someone guess a value of someone’s wealth. The wealthy can tell the government what they think it is at each point.

These are called lombard loans e.g. <a href="https:&#x2F;&#x2F;www.credit-suisse.com&#x2F;ch&#x2F;en&#x2F;private-clients&#x2F;investments&#x2F;lombard-loan.html" rel="nofollow">https:&#x2F;&#x2F;www.credit-suisse.com&#x2F;ch&#x2F;en&#x2F;private-clients&#x2F;investme...</a>

You don&#x27;t even need to be <i>that</i> rich. Schwab, for example, has a SBLOC (their &quot;Pledged Asset Line&quot;) that requires enough assets to pledge for a loan value of $100k. Certainly out of reach for a lot of people, but way lower than Musk-level borrowing. And I expect there are other brokerages with lower minimums.<p>Of course, the interest rates are pegged to SOFR plus a spread, so they&#x27;re not great right now, though a little better since the Fed lowered rates. IIRC Interactive Brokers offers lower rates.

I’ve been trying to model using a SBLOC in a FIRE simulator to cover the gap between retirement below 65 and when 401k&#x2F;social security kicks in versus selling and paying capital gains, and it looks like you come out ahead of selling stock like 90% of the time, but 10% of the time it’s much riskier and you go broke.

A better very through explanation is at <a href="https:&#x2F;&#x2F;reddit.com&#x2F;r&#x2F;BuyBorrowDieExplained&#x2F;comments&#x2F;1f26rsf&#x2F;buy_borrow_die_explained&#x2F;" rel="nofollow">https:&#x2F;&#x2F;reddit.com&#x2F;r&#x2F;BuyBorrowDieExplained&#x2F;comments&#x2F;1f26rsf&#x2F;...</a>

Borrowing money in exchange for interest is a fair transaction. Taxes on the interest are paid by the company that lent the money.<p>Suggesting anything else would be interfering with the market which is dangerous territory.

How is this different in principle from software developers using the RSUs in their brokerage accounts to get a loan for a vacation home or a boat? BTW the step-up in basis applies for when regular people die.

Wealthy people of course do all sorts of financial optimization. The framing of this as being primarily a way to avoid CGT is imho just uninformed populist rhetoric. The main reason this is done is for leverage e.g. Elon wants to buy Twitter but he does not want to reduce his stake in Tesla (ignoring whether he could actually liquidate that much TSLA stock in the first place).

If a houses can have property taxes then why can&#x27;t shares?

They&#x27;re loans so where do they get the income to pay off the interest?<p>If I attempt something like this via Interactive Brokers (which generally has the best rates), it would cost me 5-6%:<p><a href="https:&#x2F;&#x2F;www.interactivebrokers.com&#x2F;en&#x2F;trading&#x2F;margin-rates.php" rel="nofollow">https:&#x2F;&#x2F;www.interactivebrokers.com&#x2F;en&#x2F;trading&#x2F;margin-rates.p...</a><p>I&#x27;d figure if you&#x27;re a billionaire, with multi-millions in collateral, the rate is probably significantly lower, but they still need to pay down the interest.

Anyone can borrow against their own assets: house, car, stocks, cash holdings, 401k, even their expected earnings (e.g., college loans). They can even borrow against nothing as far as they&#x27;re trusted (e.g., credit cards).<p>None of this is special to any class or income level.<p>News at 11.