Borrowing against your assets instead of selling them to avoid paying capital gains taxes is one of the most idiotic ideas ever

[Part-Time Chad]

Not only will you still have to sell your assets (stocks, crypto, etc.) in order to pay the loan, but you'll have to pay interest on the loan PLUS capital gains taxes on the assets you sold, anyway. So it's actually WORSE than simply selling your assets and paying only capital gains taxes.

"Borrowing against your assets" is the stupidest idea of all time, but that doesn't stop financial gurus from repeatedly recommending it as a tax strategy.

What am I missing here?????????

 

[pinterest]

Buddy, this isn’t 2022 anymore we’re not high IQ enough to understand this

 

[Part-Time Chad]

Buddy, this isn’t 2022 anymore we’re not high IQ enough to understand this

Yeah, that's what I suspected.

 

[DrMd]

you really made a post that a total of 2 people understand and expect us to say something? but i do n ill tell u what theres easier ways to avoid taxes

 

[2ndAscension]

It works if you're rich enough for the bank or broker to trust you to keep paying the loan at an interest rate below the average stock market return, and depending on tax rates, especially for high earners, it's cheaper than realizing stocks as avoiding taxable events is optimal for compounding investments

 

[ZyzzReincarnate]

Not only will you still have to sell your assets (stocks, crypto, etc.) in order to pay the loan, but you'll have to pay interest on the loan PLUS capital gains taxes on the assets you sold, anyway. So it's actually WORSE than simply selling your assets and paying only capital gains taxes.

"Borrowing against your assets" is the stupidest idea of all time, but that doesn't stop financial gurus from repeatedly recommending it as a tax strategy.

What am I missing here?????????

thats why Roth IRA good for buying house bro. after 5 yrs you can use your gains from it to put a downpayment on house

 

[Part-Time Chad]

It works if you're rich enough for the bank or broker to trust you to keep paying the loan at an interest rate below the average stock market return, and depending on tax rates, especially for high earners, it's cheaper than realizing stocks as avoiding taxable events is optimal for compounding investments

But you'll still have to sell stocks in order to pay the loan, so you'll pay interest on the loan PLUS capital gains taxes on the stocks you sold.

 

[2ndAscension]

But you'll still have to sell stocks in order to pay the loan, so you'll pay interest on the loan PLUS capital gains taxes on the stocks you sold.

You're generally expected to have a post tax income which is enough to pay off the interest rate without selling off the stocks themselves
VT has an average return of around 8% if dividends are reinvested, if you for example paid 5% interest on your portfolio loan, you'd make around 3% profit while keeping the investments undisturbed as long as you're not margin called, which is why it's very theoretical and still requires a lot of spare cash in case of large drawdowns

 

[pinterest]

thats why Roth IRA good for buying house bro. after 5 yrs you can use your gains from it to put a downpayment on house

2018 joindate btw

 

[ZyzzReincarnate]

2018 joindate btw

JoinedMar 20, 2024

 

[8.75 demon]

Not only will you still have to sell your assets (stocks, crypto, etc.) in order to pay the loan, but you'll have to pay interest on the loan PLUS capital gains taxes on the assets you sold, anyway. So it's actually WORSE than simply selling your assets and paying only capital gains taxes.

"Borrowing against your assets" is the stupidest idea of all time, but that doesn't stop financial gurus from repeatedly recommending it as a tax strategy.

What am I missing here?????????

Only usa niggas have money to invest. It's ovER for the rest of us who don't live in states.

 

[Part-Time Chad]

You're generally expected to have a post tax income which is enough to pay off the interest rate without selling off the stocks themselves
VT has an average return of around 8% if dividends are reinvested, if you for example paid 5% interest on your portfolio loan, you'd make around 3% profit while keeping the investments undisturbed as long as you're not margin called, which is why it's very theoretical and still requires a lot of spare cash in case of large drawdowns

No matter how you slice it, I don't see how this could reasonably work.
A "post-tax" income? What's that? And why would I need a loan if I have an income that triggers no taxes?

 

[2ndAscension]

No matter how you slice it, I don't see how this could reasonably work.
A "post-tax" income? What's that? And why would I need a loan if I have an income that triggers no taxes?

With post tax I just meant net taxes income, forgot the actual term, you likely won't have an income that triggers no taxes at all, but you'd stay lightly taxed if you only "earn" enough on paper to cover the interest rate, it's called "Buy, borrow, die" in some places, but being plebs on .org, it's not applicable to anyone here, as we all lack the capital for such a massive loan

Regardless, some of the ideas apply to a regular person, if you were to take out a loan on your own portfolio, say 50% of the total value for something like a down payment at 5% interest, with the portfolio itself growing by 8% on average, you're better off both now and in the long run, rather than selling 50% of the portfolio and inducing a large taxable event, while inhibiting wealth compounding
Despite the American capital gains tax on long term investments being 0% up to 48,350 USD, it's still arguably better to delay any sale for as long as possible

TLDR: don't disturb compounding investments and avoid taxable events if possible

 

[Part-Time Chad]

TLDR: don't disturb compounding investments and avoid taxable events if possible

I wholeheartedly agree with this concept; the problem arises when you have to pay back your loan. That will likely entail cashing out assets, anyway, and most likely triggering taxes (over the $48,350 that's tax-exempt).

Now, I haven't done the complicated math, but I'll concede that it's possible that this strategy is better than simply cashing out assets only. Idk. It just seems like a lot of hassle to (maybe) save a couple of percent on taxes, if that.

 

[2ndAscension]

I wholeheartedly agree with this concept; the problem arises when you have to pay back your loan. That will likely entail cashing out assets, anyway, and most likely triggering taxes (over the $48,350 that's tax-exempt).

Depends on if you're even intending to pay back the loan beyond the interest, arguably a high amount of controlled debt is beneficial for someone in an inflationary monetary system, but that obviously has its own major risks and drawbacks. If you're paying back the entire loan, selling up to the tax exempt rate may be a better idea, but you'd have to run it through Excel or a financial planner at that point.

Now, I haven't done the complicated math, but I'll concede that it's possible that this strategy is better than simply cashing out assets only. Idk. It just seems like a lot of hassle to (maybe) save a couple of percent on taxes, if that.

It is fairly complicated but as long as the interest rate is below the average market return it should be beneficial, but it requires planning and discipline to follow through and likely a fixed rate loan, as a high interest rate environment would risk margin calling your portfolio depending on the loan size.
I think the theory is interesting and depending on conditions (tax rates, interest rate, loan size, etc.) it may be worth it.