Don't Spend Your Own Money: The Buy, Borrow, Die Strategy

One of the most powerful strategies we use is the concept of "Buy, Borrow, Die." Here’s how it works: instead of spending your own money, you invest it and borrow secured by it.

For example, assume you earned $200,000 from the recent sale of your home. You invest that in something similar to our current strategy, earning 3% dividends per month. Then, assume you buy a new home and you want to do an improvement project that would cost you $50,000. Instead of taking $50,000 of the $200,000 and spending it, and your money now being $150,000 with the $50,000 essentially never to be seen again, you borrow $50,000 secured by your investments in your brokerage account. This is called a margin loan. Margin loans require no credit check and are available to you by the company you are invested in (e.g. M1 Finance, Interactive Brokers, Robinhood, Schwab). That margin loan will have an interest rate associated with it. M1 Finance margin loan rates are currently 6.75%, Robinhood margin loan rates are currently 6.25%, and Interactive Brokers margin loan rates are currently 5.33%.

So, let’s compare…

$50,000 x 3%/month dividend income = $1,500/month

$50,000 x (6.75%/12 months) margin loan interest = $281.25/month

As you can see, keeping the $50,000 in your account and instead taking a margin loan secured by your $200,000 investment allows that $50,000 to still make you $1,218.75/month! Don’t forget there is compounding interest too.

The idea of “Buy, Borrow, Die” is that you never repay these loans. So you will earn $1,218.75/month on your $50,000 until you die, when your $50,000 will then get paid off by the remaining money in your account. Your heirs will be left with significantly more wealth from the $50,000 that remained and earned compounding interest during your life.

Many financial institutions like Interactive Brokers, M1 Finance, and Robinhood allow you to borrow even more money secured by your investments. There is a required ‘maintenance margin’ for every fund you invest in so the total amount of margin available to you is a factor of that. The amount of margin you take on your account is a factor of the risk you are personally willing to take on. The topic of margin should be very well understood by both you and your financial advisor. We learned about the power of margin through our financial education courses. My husband and I are comfortable being at about 25-30% margin on our account but in times of uncertainty, like election years, we back down on that a bit.

For more, see our 10 practical tips to implement while working your 9-to-5 to realize the dream of early retirement.

Have you heard of the Buy, Borrow, Die concept before?!

FINANCIAL DISCLAIMER

Do your own research! We are not providing nor are we intending to provide any sort of financial, tax or legal advice. This article simply includes practical tips that we’ve compiled based on our independent analysis, implementation, and realization of the results - which changed our lives. Everything is of course, subject to market fluctuation. Please always be informed and consult your professionals prior to making changes.

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