The wealth-building thread

[muslhead]

That's exactly what the SBLOC is. If you have enough of a balance to be doing this in a way that can fund your living, you have enough for a cushion to weather any down years. You could dial back from the most risky stuff but I don't think you should have to scale back from simple funds like SPY or something.

And, if you're getting SS, the loan is paid for. Doing an $80k loan each year costs $2600 in interest. You could either sell some funds each year to pay the loan (after they gain more than the loan interest), or float this as long as you need (I would say, stay under 50% loaned, though to make sure you never get liquidated if the market tanks). Then when you croak, bam – everything gets paid and what's left goes to whatever/whoever you put in your will.

Getting ss? LOL how old are you?
Since i have been doing this as a profession, the date ss will run out of money has been pulled in more than 20 years. Same for reduced benefits.
IF you are planning on ss being a major contributor to your retirement and are under 50, i love your faith but would highly recommend you not listen to me but instead do some homework. Hate to see you "plan" on it as the odds are you will be severely disappointed.

 

[muslhead]

1. Rates should stay low for the foreseeable future to juice the economy, but even if they go up, just be ready to make adjustments.
2. Never loan more than 50% of your investment value. We're talking like 50-100k loans on a million or two in value.
3. Always keep your shoes on in case changes need to be made. If that means you switch to the traditional withdrawal method, so be it.

LOL
Best of luck ... you will need it with the above.

Psst rates are not dictated by the economy. Do the math and look at your "Adjustments" needed using average long term rates in the US not current rates.

 

[Chromatischism]

IF you are planning on ss being a major contributor to your retirement and are under 50

I am under 50 and I'm not making plans that require SS funds. But it will be a nice icing on top.

 

[Chromatischism]

LOL
Best of luck ... you will need it with the above.

No luck needed. There is no reason with proper planning that this can't work. It is in fact one way the wealthy stay that way. They don't sell their assets. Or at least, not to fund their lifestyle. They just move it to other assets that store and/or generate value.

 

[PierreV]

It sounds like the idea is that the interest you pay on the loan is less than what your investments earn.

Yeah, that seems to be the idea.

The reality check with the idea is that if you were ever, are in or, will be a position to borrow money at a lower rate than the yield on your investments, with certainty long term you didn't, don't and, will not have to worry about your retirement income since you'll be immensely rich.

Then, when you have figured it out for yourself and build a small track record, write books and create an investment vehicle that uses that idea to manage other people's money (no risk to you) and charge a management fee.

 

[muslhead]

I am under 50 and I'm not making plans that require SS funds. But it will be a nice icing on top.

that is a reasonable view, imho and as such should not be included in any plan that requires the plan to work
Just my $,02

 

[muslhead]

No luck needed. There is no reason with proper planning that this can't work. It is in fact one way the wealthy stay that way. They don't sell their assets. Or at least, not to fund their lifestyle. They just move it to other assets that store and/or generate value.

best of luck to you.

 

[PatentLawyer]

Some people are tough guys and snarky assholes in front of their keyboard. Ok, so i admit it.
Also if you understood securities laws you would understand the risk if being anything but anonymous in a public situation for an RIA. Unless you are Bernie Madoff, of course

Well, I might know more about the securities laws than you assume; I have represented clients in SEC enforcement proceedings. But really my point was about people being assholes on the board, and how anonymity empowers that.

I understand the need to be anonymous, but not the need to be an asshole.

(edited to clarify that the last sentence, which was meant jokingly, is not directed at any one person)

 

[MRC01]

... The reality check with the idea is that if you were ever, are in or, will be a position to borrow money at a lower rate than the yield on your investments, with certainty long term you didn't, don't and, will not have to worry about your retirement income since you'll be immensely rich.
...

It's not that unusual. Consider the mortgage case: borrowing money to buy a house when you could pay cash. I doubt there exists any 30 year period in the past 70 years where this is not a winning proposition -- over the entire 30 year period. That doesn't mean it's risk-free. The risk is short-term: most of those 30-year periods that win overall, have a year or span of years within them where it loses over that period. If you stuck it out you still came out ahead overall. But not everyone has the guts or the means to stick it out.

This highlights the general fact that risk is a function of time. In the short term, equities have high risk. But in the long term, equities have low risk. By that I mean in the long term, no other investment does better, even when the time span includes a market crash.

 

[muslhead]

Well, I might know more about the securities laws than you assume; I have represented clients in SEC enforcement proceedings. But really my point was about people being assholes on the board, and how anonymity empowers that.

I understand your need to be anonymous, but not your need to be an asshole.

I never stated you didnt know anything about securities law, so no need to swing your what ever you go to try and impress. I was including for others that since it appears few, if any are in the business or are aware of the requirement put on advisors by the SEC or state regulatory agencies. But i get your MO, its not ok for others, but its acceptable for you.
If you dont like my responses please feel free to block instead of calling names.

 

[PatentLawyer]

I never stated you didnt know anything about securities law, so no need to swing your what ever you go to try and impress. I was including for others that since it appears few, if any are in the business or are aware of the requirement put on advisors by the SEC or state regulatory agencies. But i get your MO, its not ok for others, but its acceptable for you.
If you dont like my responses please feel free to block instead of calling names.

The last part was a joke, that’s why I “winked.” Sorry that it didn’t land.

 

[muslhead]

I know it wont do any good but oh well

From the SEC
Investor Alerts and Bulletins


Investor Alert: Securities-Backed Lines of Credit


An increasing number of securities firms are marketing and offering securities-backed lines of credit, or SBLOCs, to investors. SBLOCs can be a key revenue source for securities firms, especially in times of solid market returns and growing investment portfolios, when investors may feel more comfortable leveraging their assets. Firms market SBLOCs as a type of financing and liquidity strategy that can unlock the value of your investment portfolio. Between 2012 and 2014, one large brokerage firm that offers these programs reported a 70 percent increase in its securities-based lending business, while another firm reported an over 50 percent increase.

The Financial Industry Regulatory Authority (FINRA) and the SEC’s Office of Investor Education and Advocacy (OIEA) are issuing this investor alert to provide information about the basics of SBLOCs, how they may be marketed to you, and what risks you should consider before posting your investment portfolio as collateral. SBLOCs may seem like an attractive way to access extra capital when markets are producing positive returns, but market volatility can magnify your potential losses, placing your financial future at greater risk.

 

[Chromatischism]

Yeah, so don't go loaning 95% of your account.

All financial plans have risk. It's up to you to reasonably manage that risk.

 

[blueone]

Here's an idea I discovered recently while grappling with the same question. You'll need to do the research and math on this, but look into getting that 401k converted to a Roth IRA if you can afford the taxes, then leave it invested since there is no required distribution after 70 1/2. That helps some. Then, look into using that as collateral for an interest-only loan rather than withdrawing it: https://www.wellsfargoadvisors.com/why-wells-fargo/products-services/lending/securities-based.htm

The law has been changed, and now the minimum required distribution starting age is 72 for conventional IRAs.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

 

[blueone]

Yeah, so don't go loaning 95% of your retirement account.

All financial plans have risk. It's up to you to reasonably manage that risk.

I'm not an expert on the law, but I'm not aware of any financial institution that allows Securities-Based Loans on assets held in retirement accounts of any kind.

 

[Chromatischism]

I'm not an expert on the law, but I'm not aware of any financial institution that allows Securities-Based Loans on assets held in retirement accounts of any kind.

Aha, you are right. So you need to use a brokerage account for a SBLOC, for example, or do the typical withdrawals from a Roth IRA. Either are better than a 401k. Thank you for catching that important detail.

The law has been changed, and now the minimum required distribution starting age is 72 for conventional IRAs.

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

Interesting detail, but it's still not required for a Roth IRA.

Roth IRAs do not require withdrawals until after the death of the owner.

 

[blueone]

Interesting detail, but it's still not required for a Roth IRA.

Roth IRAs do not require withdrawals until after the death of the owner.

Yes, I know. I'm currently advising our children on Roth IRAs and 401K accounts. Unfortunately, they all blow through the income limits on Roth IRAs, relegating them to the Backdoor version, but after my prodding my daughter found out she could open a Roth 401K, which is a huge advantage for her (she's in her early 30s).

 

[Chromatischism]

This brings us back to crypto-based decentralized finance. This is one of the big use cases for it.

Right now you can borrow at 1% interest on up to 25% of the value of your assets: https://celsius.network/crypto-loans

The interest rates scale such that it actually disincentivizes loaning much more than that, so your chances of being liquidated during a crash are low.

As of this writing, if you hold 1 BTC, you could borrow about $13k for 3 years and pay $390 in interest.

Right now, SEC says:

Bitcoin and Ethereum are "probably not" securities. So if they aren't securities, what are they? Maybe this would be like doing a loan against your gold.

However many others are seemingly being considered securities, depending on factors the SEC isn't being entirely clear about. We'll see what happens regarding any forthcoming regulation. It looks like they are taking issue with earning interest on holdings for some reason.

My thinking is, if you can do it with a brokerage account and stocks, you should be able to continue to borrow against crypto assets. I don't see the difference. We'll see.

 

[AudioAaron]

I don't invest in IPOs. Seen too many people get burned over the past year. Lucid, Coinbase...

RBLX, HOOD though!

 

[Tom C]

Right now, SEC says:

Bitcoin and Ethereum are "probably not" securities. So if they aren't securities, what are they?

Uncertainty. Which is the definition of risk. Which is the same as cost.