Living off of margin loans

[Koolau]

But few among us can really know if we have won. What if an expensive health issue comes up that requires large OOP amounts to help maintain quality of life? A lawsuit depletes 3/4's of our assets? A family member could use financial assistance?

I can understand not wanting to use this technique, I'm kind of on the fence myself, but I'm still going to do it, I think a modest amount is a good strategy for me.

-ERD50

Yeah, I agree that black swans can happen. I guess I've simply chosen to "worry" about only 2 of them. LTC and run-away inflation. I have done what I can to prepare for those - the remainder, I've chosen to trust to providence. I think the ones you mention are STILL possible even for the very wealthy. In fact, being sued seems to happen to the rich more than the also-rans (I wonder why).

We each have to decide when "enough is enough." Some of us will never get there. Others, like me, have drawn that line at the bottom of the page and say "I have enough." I hope I am right!

 

[aja8888]

Good for you. Since you probably had filed with the IRS on reporting the $500K plus gift, were you ever audited?

Another reason for me to reject the $500K cash gift to my daughter option and subsequent reporting a $500K gift to the IRS was fear of raising a red flag.

I personally prefer to stay under the IRS radar.

Not reporting the gift would be a real red flag. Especially if the gift was a bank deposit.

 

[2177V]

I sent in the completed form. What audit? They would just file it against my IRS record. Not a word back from them.

I may wait a bit until she gets a job as a registered nurse before I forgive the remaining balance of the loan. She is still in her twenties and she is going to school….so I still want that string attached to force her to pay me the monthly payments. It may be “party time” for her and her college friends if I forgive the loan now.

 

[Koolau]

Good for you. Since you probably had filed with the IRS on reporting the $500K plus gift, were you ever audited?

Another reason for me to reject the $500K cash gift to my daughter option and subsequent reporting a $500K gift to the IRS was fear of raising a red flag.

I personally prefer to stay under the IRS radar.

Mom gifted us kids 5 figures and it WAS reported to IRS. Never a peep from IRS then nor when we completed her final 1040 after she passed. My gut tells me the IRS would "believe" a $500K gift. Why would anyone report a "lie" about something like that? It's stuff you fail to report that gets their motor running IMHO. YMMV

 

[2177V]

Yeah, I agree that black swans can happen. I guess I've simply chosen to "worry" about only 2 of them. LTC and run-away inflation. I have done what I can to prepare for those - the remainder, I've chosen to trust to providence. I think the ones you mention are STILL possible even for the very wealthy. In fact, being sued seems to happen to the rich more than the also-rans (I wonder why).

We each have to decide when "enough is enough." Some of us will never get there. Others, like me, have drawn that line at the bottom of the page and say "I have enough." I hope I am right!

I prepared for inflation by investing in a hedge fund against inflation: VCMDX which is up 50% this year. Derivative based commodities so this investment is high risk but high reward if inflation continue to rise.

I addressed LTC by planning to buy a condo in Tieling China where the health care is 1/3 of California. LTC in a nursing home cost $9K per month in California whereas LTC is only about $3K a month in Tieling China. I can afford to own two properties and live in two different countries for now. I am waiting for China to lift the COVID-19 restrictions which requires 14 to 21 days quarantine at a government hotel at my expense.

I have landlord and small business liability insurance to protect me against lawsuits and I already reached "enough is enough". However, my wife is 20 years younger than me and she has not reached that point as a small business owner. We are both happy with our situation.

 

[clifp]

I prepared for inflation by investing in a hedge fund against inflation: VCMDX which is up 50% this year. Derivative based commodities so this investment is high risk but high reward if inflation continue to rise.

I addressed LTC by planning to buy a condo in Tieling China where the health care is 1/3 of California. LTC in a nursing home cost $9K per month in California whereas LTC is only about $3K a month in Tieling China. I can afford to own two properties and live in two different countries for now. I am waiting for China to lift the COVID-19 restrictions which requires 14 to 21 days quarantine at a government hotel at my expense.

.

I like this out of the box thinking. I'm loath to leave Hawaii for obvious reason, But at some point. The lovely weather isn't going to matter that much if I"m in inside and need a walker. My Manadrian consists of perhaps 6 words so China isn't an option for me. But some other place might be.

 

[2177V]

I like this out of the box thinking. I'm loath to leave Hawaii for obvious reason, But at some point. The lovely weather isn't going to matter that much if I"m in inside and need a walker. My Manadrian consists of perhaps 6 words so China isn't an option for me. But some other place might be.

If you have the space, one other choice is building an in=law unit for a live-in care-taker. There is a movement to increase affordable housing in San Jose. I am a firm believer in building in-law units because the home owner can rent the unit and generate income. When the home owner needs a live-in care taker, the in-law unit is there. Double win: Rental income for now to pay for the investment and reduced LTC cost in the future. Solutions are out there but you have to think outside the box.

https://www.ktvu.com/news/san-jose-eases-laws-to-allow-construction-of-more-in-law-units

 

[pc95]

$2,000,000 is not 'ultra rich' these days, more like well-off. Multiply it by 10 or certainly 100 and you'd fit the adverb classifier.

 

[kgtest]

$2,000,000 is not 'ultra rich' these days, more like well-off. Multiply it by 10 or certainly 100 and you'd fit the adverb classifier.

United States Population (as of 11/12/2021) 333,631,248

https://dqydj.com/millionaires-in-america/
We estimate there are 8,046,080 US households with $2 million or more in net worth. That is roughly 6.25% of all US Households.


If you are in the top 6th percentile you should feel pretty lucky. That means out of 100 people only 5 are doing better than you.

 

[pc95]

United States Population (as of 11/12/2021) 333,631,248

https://dqydj.com/millionaires-in-america/
We estimate there are 8,046,080 US households with $2 million or more in net worth. That is roughly 6.25% of all US Households.


If you are in the top 6th percentile you should feel pretty lucky. That means out of 100 people only 5 are doing better than you.

What is the connotation of "ultra", -> exceedingly or extremely.....I would say try 1 in 1000 at that connotation. not 8 in 333. Thanks

 

[pc95]

I am not touching margin loans, ever again. I lost half a million dollars because I went on margin before the dot com bust. It was an expensive and painful lesson.

My former coworker who's about 10 years older than I am told me he doesn't do stocks anymore, and I asked why.

He said in late 2000's he put $350,000 (90% of his savings at the time) on Circuit City Stock when it fell to penny-level valuation which subsequently went up-in-smoke. That's more than 'ouch' .

Yes stocks can align to gambling tendencies (- $350,000 on 'red'). I'm not too happy being waist-deep in them either due to such abysmal savings/CD rates. Then again, It's been like that in Japan for several decades - the deposit rates that is.....

 

[REWahoo]

My former coworker who's about 10 years older than I am told me he doesn't do stocks anymore, and I asked why.

He said in late 2000's he put $350,000 (90% of his savings at the time) on Circuit City Stock...
.....

Yes stocks can align to gambling tendencies (- $350,000 on 'red').

+1

One indication you're gambling, not investing, is when you use the term "put money on" rather than "purchase" or "buy".

 

[2177V]

My former coworker who's about 10 years older than I am told me he doesn't do stocks anymore, and I asked why.

He said in late 2000's he put $350,000 (90% of his savings at the time) on Circuit City Stock when it fell to penny-level valuation which subsequently went up-in-smoke. That's more than 'ouch' .

Yes stocks can align to gambling tendencies (- $350,000 on 'red'). I'm not too happy being waist-deep in them either due to such abysmal savings/CD rates. Then again, It's been like that in Japan for several decades - the deposit rates that is.....

I share a similar story: My boss and a co-worker bought a bunch of GM stock during the financial crisis and GM was about to declare bankruptcy.

Their rationale: The federal government will bail out GM. I warned them that the federal government is interested in saving jobs and protecting the economy but protecting investors is not on their list because investors take risks.

Ultimately the government did save GM but let the stock become worthless. Later the government allowed GM to issue "new" stock to raise capital but the speculators holding the "old" stock lost their money.

I am also a speculator since I dumped a bunch of money on VCMDX which is an "inflation hedge" based on commodity derivatives. I made 50% in 1 year because I had speculate that inflation will rise. I was right. I am now ready to sell to lock in my gains.

If you are going to speculate, it is gambling and you either win big or lose a lot. It is not investing.

 

[walkinwood]

Karsten from Early Retirement Now takes this on in the latest installment of his SWR series. As usual, it is very detailed and it take me time to get through it - so - I haven't read it fully. For that matter, I haven't caught up on this thread either.



https://earlyretirementnow.com/2021/11/16/leverage-in-retirement-swr-series-part-49/

 

[tb001]

Karsten from Early Retirement Now takes this on in the latest installment of his SWR series. As usual, it is very detailed and it take me time to get through it - so - I haven't read it fully. For that matter, I haven't caught up on this thread either.



https://earlyretirementnow.com/2021/11/16/leverage-in-retirement-swr-series-part-49/

Thanks for posting that. Excellent article, as usual.

 

[Markola]

Thanks for posting that. Excellent article, as usual.

+1. That well-researched article with its scenarios for portfolios to fail quickly nipped in the bud any interest of mine in using debt to live on.

 

[ncbill]

The point is that a margin loan interest rate for Schwab Bank could be 1% today but 20% tomorrow because Schwab Bank can change the index and the margin. I will let the other readers compare the language of the Schwab Bank margin loan with the BofA HELOC. Let them decide for themselves which interest rate offers more protection.

As I stated previously, I have the resources to liquidate any HELOC debt or other debt with my other assets. If a borrower does NOT have similar other assets to payoff a margin loan debt (other than their nest egg), then they are playing a dangerous game by putting their nest egg at risk.

Possible, just not the least bit likely.

You're also still omitting the fact that the interest rate on that HELOC is several times the current margin rate at IB.

It's still that significant rate difference that will result in paying more interest with a HELOC than with a margin loan.

Even without making regular payments on the latter, which is additional flexibility that a HELOC lacks.

 

[clifp]

+1. That well-researched article with its scenarios for portfolios to fail quickly nipped in the bud any interest of mine in using debt to live on.

Interesting article, but I wouldn't say well researched. There is plenty of information about interest rates and inflation rates for the time period.

Rather than using the artificial rate, I think the piece would have better using the actual interest rates and inflation rates.

A big difference between now and either the 1960s or 1929, is that low margin rates we see now from company like IBD weren't available back then.
The spread is lot lower now, and I think that's big difference.

 

[aja8888]

Speaking of margin loans........when this unfolds, there will be a lot of crying and screaming:

 

[Texas Proud]

My former coworker who's about 10 years older than I am told me he doesn't do stocks anymore, and I asked why.

He said in late 2000's he put $350,000 (90% of his savings at the time) on Circuit City Stock when it fell to penny-level valuation which subsequently went up-in-smoke. That's more than 'ouch' .

Yes stocks can align to gambling tendencies (- $350,000 on 'red'). I'm not too happy being waist-deep in them either due to such abysmal savings/CD rates. Then again, It's been like that in Japan for several decades - the deposit rates that is.....

Anybody who does not diversify is being stupid... and I mean REALLY stupid...


I would not use this as an example of investing... I have done really well investing in stocks (mostly mutual funds but a few individual stocks)

 

[OverThinkMuch]

The most common term I see used for ultra rich is "billionaire". Warren Buffet has mentioned various things that stayed the same when he became ultra rich... but he sure liked flying a private Gulfstream jet. That's out of reach for someone with $2 million.

 

[Sunset]

The most common term I see used for ultra rich is "billionaire". Warren Buffet has mentioned various things that stayed the same when he became ultra rich... but he sure liked flying a private Gulfstream jet. That's out of reach for someone with $2 million.

Thankfully, I lack the imagination to wistfully miss the life experiences of a billionaire.

When reading about the 10 largest yachts in the world, I read that anybody can rent a large one (Flying Fox) for a week for only $3.5 million.

That week would cost the majority of folks, and most on this site, their entire life savings

 

[Time2]

I received an email from IBKR yesterday.


"Effective January 3, 2022, we are changing the IBKR margin rate tier structure for USD and nine other currencies."


Problem is I don't know if this is an increase or decrease.

Does anyone know the previous rate?



The benchmark is 0.08%, so on $0 to $100,000 the interest rate is 1.58% and $100,000 to $1,000,000 you pay 1.08%.



If you borrowed $250,000 the blended rate is 1.28%.

 

[geeky_grrl]

Does anyone know the previous rate?

Old rates (which are the current ones for a month are still on their website.
https://www.interactivebrokers.com/en/index.php?f=46376

Rates went up for loans over $1 million - they used to be BM + .5 or BM +.3 depending on size.

 

[Time2]

Old rates (which are the current ones for a month are still on their website.
https://www.interactivebrokers.com/en/index.php?f=46376

Rates went up for loans over $1 million - they used to be BM + .5 or BM +.3 depending on size.

Ahh, thank you, no change below $1,000,000.