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> - If I keep the stock, and borrow against it, I pay no taxes, but I do pay finance fees (e.g. interest). The finance fees work out to less than taxes. I'm no

> - If I keep the stock, and borrow against it, I pay no taxes, but I do pay finance fees (e.g. interest). The finance fees work out to less than taxes. I'm not following the whole lifecycle. You borrow against your stock, spend that money, and then repay the loan using stock? Without having technically sold the stock?

sokoloff 4y ago
You don't repay the loan using stock. You repay it with cash from other sources (possibly thrown off by the new investment) or you keep the loan open and continue to pay interest on it.
aeyes 4y ago
You repay the loan with the next loan because you have $10b in stock but only took out a $10m loan. In the meantime the stock appreciates some more or you have more vested stock. I guess the risk here would be that the stock goes to 0, you get margin called AND you are now on the hook to pay taxes.
kjksf 4y ago
You don't have to repay the loan (for a very loooong time). Let's say you have 10 million in stock. A typical margin account allows you to borrow up to, say, 40% of that. That's 4 million dollars. Let's say you borrow $1 million and spend it. Currently interest rate on a margin loan is under %2. So every year the amount you need to repay grows by $20k (2% of $1 million, for simplicity I don't count compounding). So in 10 years that would be $1.2 million to repay. But you're authorized for $4 million. If in those 10 years the value of stock doubles to $20 million, then you're authorized to borrow $8 million - the amount you can borrow grows faster than the amount you need to repay. To be clear: eventually you have to repay it but in the corner case it could be done when you die. There are of course caveats. If interest rate increases dramatically, then the amount to repay will grow much faster etc. but you can see how e.g. if you have $10 million then you could borrow and spend $100k to live a good life and never have to sell your stock to fund your life (especially if stocks keep going up faster than interest rate, inflation and your spending habits)
- MockObject 4y ago
  Very interesting. And the total income works out to more than, say, an index fund?
HWR_14 4y ago
> You borrow against your stock, spend that money, and then repay the loan using stock? Without having technically sold the stock? I know Ken Lay did that exact chain of events a lot to cash money out of Enron before it's bankruptcy.

sokoloff 4y ago

You don't repay the loan using stock. You repay it with cash from other sources (possibly thrown off by the new investment) or you keep the loan open and continue to pay interest on it.

aeyes 4y ago

You repay the loan with the next loan because you have $10b in stock but only took out a $10m loan. In the meantime the stock appreciates some more or you have more vested stock. I guess the risk here would be that the stock goes to 0, you get margin called AND you are now on the hook to pay taxes.

kjksf 4y ago

You don't have to repay the loan (for a very loooong time). Let's say you have 10 million in stock. A typical margin account allows you to borrow up to, say, 40% of that. That's 4 million dollars. Let's say you borrow $1 million and spend it. Currently interest rate on a margin loan is under %2. So every year the amount you need to repay grows by $20k (2% of $1 million, for simplicity I don't count compounding). So in 10 years that would be $1.2 million to repay. But you're authorized for $4 million. If in those 10 years the value of stock doubles to $20 million, then you're authorized to borrow $8 million - the amount you can borrow grows faster than the amount you need to repay. To be clear: eventually you have to repay it but in the corner case it could be done when you die. There are of course caveats. If interest rate increases dramatically, then the amount to repay will grow much faster etc. but you can see how e.g. if you have $10 million then you could borrow and spend $100k to live a good life and never have to sell your stock to fund your life (especially if stocks keep going up faster than interest rate, inflation and your spending habits)

MockObject 4y ago
Very interesting. And the total income works out to more than, say, an index fund?

HWR_14 4y ago

> You borrow against your stock, spend that money, and then repay the loan using stock? Without having technically sold the stock? I know Ken Lay did that exact chain of events a lot to cash money out of Enron before it's bankruptcy.