Radagast
New Contributor
Hi all. You can call me Grek. After sacrificing heavily on expenses and my personal time, I saved about a million dollars after seven years in the slowlane at a NYC law firm and a few years as an inhouse brokerage lawyer (where I currently work). Last week I picked up a copy of Fastlane Millionaire on a whim and plowed through it in two sittings reading through the night. It was -- by far -- the most American book I have ever read and really changed my perspective as to what might be possible if one took an adventurous tack in life.
In the coming days I am sure I will read and learn a great deal from what has been written here. As an initial offering I will share a cost-saving tip that you may already know if you have traded through a brokerage: the use of margin as a source of liquidity.
Most people think of margin as money that you borrow from your brokerage to buy additional securities. This is true, but what is less known is that you can actually just withdraw this cash and use it for whatever you want (e.g. to finance your business). For example: let's say you have 200K in fully-paid S&P500 index shares; you need to quickly raise 10K; you can simply withdraw 10K from your account instead of selling any of those shares. What you are doing is equivalent to taking out a collateralized loan out against your portfolio. Since this loan is backed by collateral, you can get it at very low interest rates at certain brokerages. (For example, I can tap my portfolio for many thousands of dollars at about 2% interest).
Nothing is free in life and the same is true of margin borrowing. By taking out margin loans, you are putting up your portfolio assets up as collateral and if those assets fall in value, you risk liquidation (i.e. the forced sale of those assets) if you have overborrowed. So you have to fully understand the risks before you do any of this. There are also tax consequences, such as dividends from margined shares being taxed as ordinary income instead of cap gains.
With that said, the ability to tap your portfolio take large amounts is extremely useful and if the risk is managed properly, beats the hell out of a lot of other financing options.
In the coming days I am sure I will read and learn a great deal from what has been written here. As an initial offering I will share a cost-saving tip that you may already know if you have traded through a brokerage: the use of margin as a source of liquidity.
Most people think of margin as money that you borrow from your brokerage to buy additional securities. This is true, but what is less known is that you can actually just withdraw this cash and use it for whatever you want (e.g. to finance your business). For example: let's say you have 200K in fully-paid S&P500 index shares; you need to quickly raise 10K; you can simply withdraw 10K from your account instead of selling any of those shares. What you are doing is equivalent to taking out a collateralized loan out against your portfolio. Since this loan is backed by collateral, you can get it at very low interest rates at certain brokerages. (For example, I can tap my portfolio for many thousands of dollars at about 2% interest).
Nothing is free in life and the same is true of margin borrowing. By taking out margin loans, you are putting up your portfolio assets up as collateral and if those assets fall in value, you risk liquidation (i.e. the forced sale of those assets) if you have overborrowed. So you have to fully understand the risks before you do any of this. There are also tax consequences, such as dividends from margined shares being taxed as ordinary income instead of cap gains.
With that said, the ability to tap your portfolio take large amounts is extremely useful and if the risk is managed properly, beats the hell out of a lot of other financing options.
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