Buy Borrow Die

What is the Buy Borrow Die strategy?

Buy Borrow Die is a wealth-building and tax optimization strategy used by wealthy individuals. Instead of selling appreciated assets and paying capital gains taxes, you borrow against your portfolio to fund your lifestyle. When you pass away, your heirs receive a stepped-up cost basis, potentially eliminating the capital gains taxes entirely.

Is the Buy Borrow Die strategy legal?

Yes, the Buy Borrow Die strategy is completely legal. It takes advantage of existing tax laws, including the favorable treatment of long-term capital gains, the tax-free nature of loan proceeds, and the stepped-up basis rules for inherited assets. However, tax laws can change, so it's important to stay informed and consult with a tax professional.

What are the risks of the Buy Borrow Die strategy?

The primary risk is a margin call. If your portfolio value drops significantly while you have outstanding loans, your broker may require you to deposit more funds or sell assets to maintain the required loan-to-value ratio. This calculator helps you understand and manage this risk by showing your projected LTV ratios and margin call thresholds.

How much can I safely borrow against my portfolio?

Most financial experts recommend keeping your loan-to-value (LTV) ratio below 30-40% to maintain a safe buffer against market downturns. Our calculator shows you the maximum LTV you'll reach during retirement and assesses your margin call risk at different maintenance requirement levels.

What is a stepped-up basis and why does it matter?

When you inherit assets, the cost basis is "stepped up" to the fair market value at the time of the original owner's death. This means all the capital gains that accumulated during their lifetime are effectively erased for tax purposes. For example, if someone bought stock for $100,000 that grew to $1,000,000, their heirs would inherit it with a $1,000,000 basis, owing no capital gains tax on the $900,000 gain.

Who should use the Buy Borrow Die strategy?

This strategy is most beneficial for individuals with significant investment portfolios who want to minimize taxes, maintain their lifestyle in retirement without selling assets, and pass wealth to heirs efficiently. It's particularly valuable for those with highly appreciated assets where selling would trigger large capital gains taxes.

1. Maximize the Spread Between Portfolio Returns and Margin Interest Rates

The wider the gap between your portfolio's annual return and your margin interest rate, the more wealth you'll accumulate. This spread is the engine that powers the Buy Borrow Die strategy. For example, if your portfolio returns 12% annually and your margin rate is 5%, you're earning a 7% spread on borrowed money - essentially getting paid to borrow.

Choose a brokerage with the lowest possible margin rates: This is one of the most impactful decisions you'll make. Retail brokerages often charge 10-13% for margin loans, while brokerages catering to active traders offer rates of 4-6%. On a $500,000 margin loan, that's the difference between paying $50,000 vs $25,000 per year in interest. Over a 30-year retirement, choosing the wrong brokerage could cost you over $750,000 in unnecessary interest payments.

Plan for Fed rate hiking cycles: Margin rates are typically tied to the Federal Funds Rate. When the Fed raises rates aggressively (as they did in 2022-2023, taking rates from near 0% to over 5%), your margin costs can double or triple quickly. Successful Buy Borrow Die practitioners prepare for these cycles by:

• Building a cash reserve of 1-2 years of living expenses before retiring to reduce borrowing during high-rate periods
• Maintaining flexibility to reduce discretionary spending by 20-30% when rates spike
• Considering paying down some margin debt during extended high-rate periods if the spread becomes unfavorable
• Monitoring Fed policy and economic indicators to anticipate rate changes

2. Minimize Max-Drawdown Risk Through Diversification and Risk Management

A margin call during a severe market downturn is the single biggest threat to the Buy Borrow Die strategy. If your portfolio drops 50% while you have significant margin debt, you could be forced to sell at the worst possible time, permanently destroying your wealth. The key is ensuring your portfolio can survive major crashes without triggering a margin call.

Build a truly diversified portfolio: Most people think they're diversified but aren't. Owning 10 different tech stocks isn't diversification. True diversification means holding assets that don't move together. Consider a mix of:

• Equities (50-70%): Broad market index funds across US, international, and emerging markets
• Gold (20-35%): Historically performs well during market crashes and inflation - often rising when stocks fall
• Bitcoin (5-15%): Uncorrelated to traditional assets over long time horizons, with asymmetric upside potential

Consider professional risk management: Tactical allocation strategies, trend-following systems, or managed futures can significantly reduce drawdowns. While these approaches may underperform in strong bull markets, they can prevent the catastrophic 50-60% drawdowns that would trigger margin calls. Some services specialize in risk-managed portfolios designed specifically for investors using leverage.

Maintain a substantial emergency fund: Keep 1-2 years of living expenses in a high-yield savings account, separate from your investment portfolio. This serves three critical purposes:

• Covers living expenses during market crashes without needing to borrow more
• Provides capital to meet margin calls if they occur, preventing forced liquidation
• Gives you psychological peace of mind to stay the course during volatile periods

Start conservative and adjust over time: When you first retire, keep your LTV ratio very low (under 20%). As you become comfortable with the strategy and build a track record, you can gradually increase leverage. This approach lets you learn the emotional realities of market volatility before taking on significant risk.