Portfolio-Backed Loan Strategy

A strategy for using portfolio-backed loans instead of selling assets to fund new ventures while minimizing tax implications.

Core Strategy

• Keep majority of money in market index funds (like SPY)
• Take loans against portfolio instead of selling assets
• Avoid triggering taxable events from selling stocks
• Use borrowed money to fund new ventures/investments

How It Works

• Bank keeps portfolio as collateral (typically 120% of loan value)
• Get access to capital without selling appreciated assets
• If investment fails:
  • Only need to wait for market to recover losses
  • Stock market historically doubles every ~8 years
  • No permanent loss of capital if you can wait it out

Benefits

• Lower interest rates compared to other loans
• Maintains market exposure and potential appreciation
• Preserves principal investment
• Avoids immediate tax implications
• Keeps long-term investment strategy intact

Example Scenario

• Want to invest $1M in new venture
• Options:
  1. Sell $1M in stocks (triggers tax event)
  2. Take portfolio-backed loan:
     • Bank holds $1.2M as collateral
     • Get $1M loan for new investment
     • Original investment continues growing
     • Only pay loan interest rate

Risk Considerations

• Market downturn could trigger margin calls
• Need patience to wait out market recovery if investment fails
• Must be comfortable with leverage
• Interest payments on loan

Key Takeaway

• Better to borrow against appreciating assets than sell them
• Maintains wealth-building potential while accessing capital
• Tax-efficient way to fund new opportunities