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Novel Investment Strategies - Part 1 - Ep #67
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Welcome to episode 67 of the One for the Money podcast. I am so very grateful you have taken the time to listen. This is part 1 of a 2-part series on novel investment strategies. In this episode, I’ll go over what is sometimes referred to as the borrow, spend, die strategy.
In this episode...
- SBLOC Defined -[1:45]
- SBLOC in Practice -[4:58]
- Stock Options - Restricted Stock Units (RSUs) -[6:30]
Most people are familiar with the notion of buying and selling investments. The goal when buying an investment is that it increases in value and then you sell the investment to enjoy the proceeds. But there is a strategy where you can spend without ever having to sell. This is much less complicated than it may sound when one realizes it’s not all that different from a home equity line of credit, or HELOC, for short. With a HELOC the homeowner will borrow money against their appreciated property and aren’t required to sell their home to do so. There is a similar option with stock market investments and it is called a security-based line of credit, or SBLOC for short. Here is how they work.
An SBLOC (Securities-Based Line of Credit) is a special type of loan where you use your non-retirement investments as collateral. Just how can you use some of this newfound wealth without triggering a huge tax bill and not missing out on potential future gains? Why an SBLOC of course. These allow you to borrow against these shares using your stock as collateral.
In fact this is the exact same strategy that many uber wealthy utilize to access the wealth formed in the publicly traded companies that they founded.
The strategy is sometimes called the borrow, spend, die strategy. They borrow from their massive wealth, spend the proceeds and when they die some of their shares are sold to pay off the loans. Often this can lead to massive tax savings as when they die, there could be a step up in the basis at death and the taxes could be severely limited.
Tips Tricks and Strategies
RSUs (short for Restricted Stock Units) are a type of compensation given to employees by a company. They represent company shares that an employee will receive in the future. However, there are certain conditions, such as working for the company for a certain period of time or achieving specific performance goals, which must be met before the employee actually receives the shares
Once your shares are granted and taxes paid, there is no taxable benefit to staying invested in those shares. For many investors, it may make more sense to sell all of the shares and diversify their investments or use the proceeds to pay of higher interest debt.
References
Borrow, Spend and Die Strategy
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