How to Boost Your Buying Power: Securities Based Lending

TL;DR: You can borrow money using your stock as collateral. This is another way to finance a purchase or a backup source of emergency funding. Rates usually float daily, and you usually need at least ~$100k in assets to get this going.

Professionals in finance often use a ton of leverage their deals, their strategies, and ultimately their profits. For example, a long/short hedge fund can have aggregate portfolio sizes that are orders of magnitude bigger than the actual margin they need to post (i.e. how much money they put in, their initial cash investment).

However, this is not limited to only big companies and the ultra, ultra wealthy! Much like a HELOC on home equity, you can take out a line of credit on the stocks you have if you have at least ~$100k in stocks and you hold it with a bank like JP Morgan or Morgan Stanley. General terms are rates that float daily (usually the LIBOR rate + some spread that gets smaller as your asset value goes up), and roughly 50% of the value of your assets as the maximum loan size. As of the time of this writing, rates are generally slightly less than HELOC rates.

This can provide quite a few benefits. If you have an emergency expense you need to take care of, you can use this line of credit to pay it off without selling off stock (thus potentially incurring some tax bill). This will also allow the average Joe to leverage their own net worth into great investments if given the opportunity. For example, if you find some great real estate deals, you could completely finance it with 80% traditional loan, 10% HELOC, and the rest as a loan collateralized by stock you already have sitting around anyway. This is just an example.

However, as with any form of borrowing, this is not for everyone. Overleveraging yourself is a real concern and can cause an increased risk of ruin. Please consult a financial advisor to see if this is right for you.

Happy Securities-Based Lending!

TheJKW