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- Borrowing against stock portfolios at low interest rates allows the ultra-wealthy to avoid taxes and exceed what they borrow.
- When borrowing on margin, it is important to approach it cautiously, considering risks such as market crashes and declining portfolio value.
Deep dives
Borrowing on Margin: Leveraging Your Portfolio
A key strategy employed by the ultra-wealthy is borrowing against their stock portfolios to avoid taxes and obtain incredibly low-interest loans. This method allows them to continually borrow against their stocks, taking advantage of the stock's annual growth to exceed what they borrow. By utilizing asset-backed loans, they can access between 50-65% of their portfolio's total assets at rates as low as 1-2%. These loans are tax-free and have no additional fees or costs. It's important to be cautious with margin-based loans as there are risks. If the value of your portfolio drops, you may be required to repay the borrowed amount accordingly to maintain the risk tolerance set by the lender. Overall, borrowing on margin can be a useful tool for short-term transactions or investments.
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