4 ms·

Is it actually possible to borrow for so many times without ever returning it back or is this an hyperbole?

by ailef 5y ago

helge9210 5y ago
You pay back last year debt with the money you borrow this year.
- ganzuul 5y ago
  VISAs business model in a nutshell, evidently.
- Sam_Odio 5y ago
  Paying back debt requires income, which is taxed. In this example you continue to incur new debt, but at a rate not more than the growth rate of your assets.
- weird-eye-issue 5y ago
  With a PAL you don't have to pay back the debt, just the interest, as long as the assets don't drop in value too much
gnopgnip 5y ago
Yes, you can take out a mortgage for instance
Sam_Odio 5y ago
In this example you will always have more in assets than you will borrow, so any new borrowing will be well collateralized. So yes, you can do this.
MattGaiser 5y ago
Certainly. This is basically a line of credit secured by your asset portfolio. As long as you keep that line of credit under your asset value and pay the interest, you can do this.
akg_67 5y ago
Yes, it is possible. Think of total assets as annuity, annual loan as payment from annuity, and interest as management fee charged by annuity administrator. Back of the napkin calculations: Total assets $100 million Annual Expenses as Annual Income Annual withdrawal = $4 million Assuming 40% tax, tax due = $1 million Asset liquidated = $5 million Remaining asset = $95 million End of Year asset @ 4% growth = 98.8 million Annual Expenses as Loan Annual withdrawal as loan = $4 million 1% interest on annual loan = $40,000 Asset liquidated to pay loan interest and taxes on liquidated assets = $60,000 Remaining assets = $99.940 million EOY asset = $103.937 million - $4 million
- WalterBright 5y ago
  1% interest on annual loan? I'd like to know who your lender is! Inflation - ignored. What happens when your asset goes down in value - ignored.
  - novok 5y ago
    At IBKR, the margin loan rate is %1.1-%0.75 after the first $100k, and anyone can get that with no special negotiation effort. https://www.interactivebrokers.com/en/index.php?f=46376&p=m https://www.interactivebrokers.com/en/index.php?f=46376&p=m Now imagine you're a billionaire!
    - WalterBright 5y ago
      You're right. But I don't think that is likely to hold for very long. I've never seen interest rates this low in my life. Furthermore, when interest rates do go up, suddenly you're paying a lot of money for that large accumulated debt.
      - cudgy 5y ago
        People have been saying “I’ve never seen interest rates this low in my life” for the last few decades. Also, much of the debt could be tied to long-term loans in which case the overall interest rate would not move much.

Is it actually possible to borrow for so many times without ever returning it back or is this an hyperbole?

by ailef 5y ago

Is it actually possible to borrow for so many times without ever returning it back or is this an hyperbole?

helge9210 5y ago

You pay back last year debt with the money you borrow this year.

ganzuul 5y ago
VISAs business model in a nutshell, evidently.
Sam_Odio 5y ago
Paying back debt requires income, which is taxed. In this example you continue to incur new debt, but at a rate not more than the growth rate of your assets.
weird-eye-issue 5y ago
With a PAL you don't have to pay back the debt, just the interest, as long as the assets don't drop in value too much

gnopgnip 5y ago

Yes, you can take out a mortgage for instance

Sam_Odio 5y ago

In this example you will always have more in assets than you will borrow, so any new borrowing will be well collateralized. So yes, you can do this.

MattGaiser 5y ago

Certainly. This is basically a line of credit secured by your asset portfolio. As long as you keep that line of credit under your asset value and pay the interest, you can do this.

akg_67 5y ago

Yes, it is possible. Think of total assets as annuity, annual loan as payment from annuity, and interest as management fee charged by annuity administrator. Back of the napkin calculations: Total assets $100 million Annual Expenses as Annual Income Annual withdrawal = $4 million Assuming 40% tax, tax due = $1 million Asset liquidated = $5 million Remaining asset = $95 million End of Year asset @ 4% growth = 98.8 million Annual Expenses as Loan Annual withdrawal as loan = $4 million 1% interest on annual loan = $40,000 Asset liquidated to pay loan interest and taxes on liquidated assets = $60,000 Remaining assets = $99.940 million EOY asset = $103.937 million - $4 million

WalterBright 5y ago
1% interest on annual loan? I'd like to know who your lender is! Inflation - ignored. What happens when your asset goes down in value - ignored.
- novok 5y ago
  At IBKR, the margin loan rate is %1.1-%0.75 after the first $100k, and anyone can get that with no special negotiation effort. https://www.interactivebrokers.com/en/index.php?f=46376&p=m https://www.interactivebrokers.com/en/index.php?f=46376&p=m Now imagine you're a billionaire!
  - WalterBright 5y ago
    You're right. But I don't think that is likely to hold for very long. I've never seen interest rates this low in my life. Furthermore, when interest rates do go up, suddenly you're paying a lot of money for that large accumulated debt.
    - cudgy 5y ago
      People have been saying “I’ve never seen interest rates this low in my life” for the last few decades. Also, much of the debt could be tied to long-term loans in which case the overall interest rate would not move much.