What if you could unlock cash from your investments without selling a single share? Borrowing against investments allows you to tap into your portfolio’s value while keeping your assets working for you.
Whether you need funds for a new investment, a major purchase, or simply want to manage cash flow more efficiently, securities-based lending offers a flexible alternative to traditional loans. However, with potential rewards come risks — market volatility, margin calls, and overleveraging can turn this strategy into a potential disaster if not handled wisely.
So, can you borrow against your stock portfolio — and more importantly, should you?
In this guide, we’ll discuss how to borrow against assets, the different loan options available, and the best ways to use this strategy to your advantage. From portfolio lines of credit to securities-based loans, we’ll break down the mechanics, benefits, and risks so you can make an informed decision.
By the end of this article, our hope is that you’ll understand when borrowing against stocks makes financial sense, when it doesn’t, and how to avoid costly mistakes.
If you’ve ever considered leveraging your investments for liquidity, we’re here to help you make informed decisions about whether this strategy is right for you.
How Borrowing Against Investments Works
For investors looking to unlock liquidity without selling their assets, borrowing against investments can be a strategic tool.
This approach allows you to access funds by leveraging your portfolio as collateral, avoiding the need to liquidate securities and trigger capital gains taxes. How to borrow against assets depends on the type of lending arrangement you choose, however.
Two of the most common methods are margin loans and securities-based lines of credit (SBLOCs). While both allow you to borrow against your portfolio, they work in different ways and come with distinct benefits and risks.
Margin Loans: Borrowing for Investment Leverage
A margin loan is a type of lending that allows investors to borrow money from their brokerage firm using securities — such as stocks, bonds, or mutual funds — as collateral.
Many investors use margin loans to borrow against stocks to buy additional shares, aiming to amplify their returns. However, margin loans are not just for reinvesting in securities; they can also provide liquidity for other financial needs.
Margin loans typically come with relatively low interest rates compared to personal loans or credit cards. However, they also have loan-to-value (LTV) limits, meaning the amount you can borrow depends on the value of your portfolio. If the market drops significantly and your LTV ratio becomes too high, your brokerage may issue a margin call, requiring you to add more funds or sell investments to cover the shortfall.
Margin loans are best suited for investors who understand the risks of leverage and can manage market fluctuations without being forced to sell assets when their stocks may be underperforming.
Securities-Based Line of Credit (SBLOC): A Flexible Lending Option
A securities-based line of credit (SBLOC) is another way investors can borrow against assets without selling investments. Unlike margin loans, SBLOCs are not restricted to investment purchases and can be used for almost any purpose, from real estate investments to personal expenses.
An SBLOC works similarly to a home equity line of credit (HELOC) — but instead of using your home as collateral, you’re using investments as collateral. The lender determines your borrowing capacity based on a percentage of your portfolio’s value, typically allowing you to access 50-70% of the portfolio’s worth. These funds can be drawn as needed, and you only pay interest on the amount borrowed.
One of the biggest advantages of an SBLOC is its flexibility and liquidity. With an SBLOC, you can access funds quickly without selling your investments, keeping your portfolio intact and still benefiting from potential market growth.
However, much like margin loans, SBLOCs come with risks — if your portfolio value declines too much, your lender may require additional collateral or force the sale of securities to cover the loan balance.
Borrowing Against Inherited Property or Other Assets
In some cases, investors may also consider borrowing against inherited property as an alternative to borrowing against their investment portfolio. If you’ve inherited real estate or other valuable assets, you can use them as collateral for a loan rather than selling them outright. This approach can help maintain family wealth while accessing liquidity.
However, the decision to borrow against inherited property versus a portfolio line of credit depends on factors such as interest rates, tax implications, and the liquidity needs of the borrower. A trusted financial planner can help you evaluate your options and choose the best approach based on your individual circumstances.
Choosing the Right Borrowing Option
Both margin loans and securities-based lending offer opportunities to access capital while keeping investments intact, but they aren’t one-size-fits-all solutions. Before making any drastic decisions, investors should consider:
- Loan purpose: Are you borrowing for investment leverage, a major purchase, or personal liquidity?
- Market conditions: If your portfolio drops in value, can you cover margin calls or loan repayments?
- Interest rates: Compare rates between portfolio lines of credit, margin loans, and traditional borrowing options.
- Risk tolerance: Are you comfortable with the possibility of forced asset liquidation in case of a market downturn?
By understanding how to borrow against assets strategically, investors can make informed decisions, use their portfolios as powerful financial tools, and mitigate unnecessary risks.
Common Reasons for Borrowing Against Investments
Borrowing against your investment portfolio isn’t just for hedge fund managers or ultra-wealthy investors — it can be a practical strategy for anyone with a well-structured financial plan. Investors use securities-based lending to access liquidity for various financial goals without liquidating their portfolios and triggering capital gains taxes.
Here are some of the most common reasons investors choose borrowing against assets as part of their financial strategy:
Real Estate and Property Investment
Investors looking to acquire property often wonder: “Can I borrow against my stock portfolio?”
The answer: many use portfolio lines of credit or securities-based lines of credit (SBLOCs) to secure funds for a down payment, purchase an investment property, or renovate an existing one. This strategy allows them to access capital without disrupting their long-term investment strategy.
For those with inherited wealth, borrowing against inherited property can also provide liquidity without selling a valuable family asset. Instead of taking out a traditional mortgage or tapping into personal savings, a securities-backed loan can offer a cost-effective financing solution.
Business Financing and Expansion
Entrepreneurs and business owners often rely on borrowing against investments to fund operations, invest in growth opportunities, or manage cash flow during slow seasons. Instead of applying for a high-interest business loan, an investment-backed loan can provide immediate access to capital with potentially lower interest rates and more flexible repayment terms.
Tax-Efficient Wealth Management
One of the biggest advantages of borrowing against stocks instead of selling them is tax efficiency. Selling investments can trigger capital gains taxes, which can be especially costly for high-net-worth investors. A securities-based line of credit allows investors to access liquidity without generating a taxable event.
This strategy can be particularly beneficial for retirees who need cash but want to avoid bumping into a higher tax bracket. By using portfolio lines of credit, they can supplement their income without triggering additional taxable withdrawals from retirement accounts.
Emergency Financial Needs
Unexpected expenses — whether medical emergencies, legal costs, or sudden repairs — can put a strain on personal finances. Instead of selling investments at an unlucky time, a portfolio line of credit can provide a cushion of liquidity that investors can tap into when needed.
While this approach can be a useful safety net, it’s important to avoid overleveraging. Investors should make sure they have a strong repayment plan in place to avoid unnecessary financial strain before leveraging their assets.
Investment Opportunities
Investors sometimes borrow against assets to take advantage of new investment opportunities, whether in stocks, private equity, or other asset classes. By keeping their existing portfolio intact and using borrowed funds to invest in additional assets, they can continue to benefit from market growth while expanding their holdings.
However, this approach carries risk, particularly if the borrowed funds are used to invest in volatile or speculative assets. If markets decline, investors may face margin calls or be forced to sell assets at a loss.
Risks and Considerations of Borrowing Against Assets
While borrowing against investments has advantages, it’s not without risks, as we’ve discussed. Investors should carefully weigh the potential downsides before leveraging their portfolios.
Market Volatility and Margin Calls
One of the biggest risks of securities-based lending is that market fluctuations can affect the value of your collateral. If the value of your portfolio drops significantly, your lender may issue a margin call, requiring you to deposit additional funds or sell investments to cover the loan.
This risk is particularly high for investors who borrow against stocks, as equities tend to be more volatile than bonds or other asset classes. If markets experience a downturn, you could be forced to sell investments at a loss.
Interest Rate Risks
Although securities-based lines of credit and portfolio lines of credit often have lower interest rates than traditional loans, those rates can fluctuate based on market conditions. If interest rates rise, your borrowing costs may increase, making the loan more expensive over time.
Potential Overleveraging
Just because you have access to credit doesn’t mean you should always use it. Overleveraging (borrowing too much against your investments) can create financial strain, particularly if your income fluctuates or market conditions change.
To mitigate this risk, investors should work with their trusted financial professionals to be sure they maintain a conservative loan-to-value (LTV) ratio, ensuring they don’t borrow more than they can comfortably manage.
Limited Use of Funds
While securities-based lending offers flexibility, some lenders impose restrictions on how borrowed funds can be used. For example, some portfolio lines of credit cannot be used to purchase additional securities.
Investors should always review their lender’s terms carefully before committing to a loan.
Who Should (and Shouldn’t) Borrow Against Their Portfolio?
Borrowing against investments can be a strategic way to unlock liquidity, but it’s not the right move for every investor.
While some benefit from the flexibility and tax advantages, others may find themselves overleveraged in the face of market downturns. Understanding when securities-based lending makes sense — and when it doesn’t — is key to making an informed decision.
Who Benefits Most from Borrowing Against Investments?
- High-Net-Worth Investors Seeking Tax Efficiency: Selling investments to access cash often triggers capital gains taxes. Using investments as collateral allows investors to access liquidity without realizing taxable gains, helping them preserve wealth and keep their long-term financial strategy intact.
- Business Owners and Entrepreneurs: Accessing capital through a portfolio line of credit can be an efficient way for business owners to manage cash flow, fund expansion, or cover unexpected expenses without resorting to high-interest business loans.
- Real Estate Investors: Investors who need capital for a down payment or property improvements often turn to investment-backed loans to fund real estate purchases. This allows them to keep their investment portfolio growing while securing financing at competitive interest rates.
- Retirees Looking for Tax-Efficient Cash Flow: A securities-based line of credit can provide retirees with liquidity without requiring taxable withdrawals from retirement accounts, helping them maintain financial flexibility in their later years.
Who Should Be Cautious?
- Investors with High-Risk Portfolios: If your portfolio consists mostly of volatile stocks, borrowing against it can be risky. A sudden market downturn could trigger a margin call, forcing you to sell assets at an inopportune time.
- Individuals Without a Clear Repayment Plan: While a securities-based loan offers flexibility, it still requires repayment. Without a structured plan, investors could struggle to manage rising interest costs or fluctuating asset values.
- Anyone Relying on Investment Growth to Repay the Loan: If the assumption is that portfolio returns will outpace loan interest rates, there’s always the risk that market downturns could disrupt this plan, leading to potential losses.
Best Practices for Borrowing Against Investments
If borrowing against stocks or other investments aligns with your financial strategy, it’s important to approach it carefully. While the potential benefits are strong, mismanaging this type of loan can lead to financial stress or forced asset liquidation.
1. Maintain a Conservative Loan-to-Value (LTV) Ratio
Most lenders allow you to borrow 50-70% of your portfolio’s value, but that doesn’t mean you should take the maximum amount. A lower LTV ratio (such as 25-40%) reduces the risk of margin calls and ensures you have a cushion in case the market declines.
2. Borrow for Strategic, High-Value Purposes
The best uses of a portfolio line of credit are those that contribute to long-term financial growth, such as funding business opportunities, acquiring real estate, or tax-efficient wealth management.
Borrowing for discretionary expenses, like vacations or luxury purchases, can increase financial strain if markets fluctuate.
3. Monitor Your Portfolio Regularly
Market volatility directly impacts the value of your collateral. Keeping a close eye on your investments helps you anticipate risks, adjust your borrowing strategy, and ensure you don’t end up facing unexpected repayment demands.
4. Understand the Loan Terms and Interest Rates
Different securities-based lending options come with varying interest rates, repayment terms, and restrictions on fund usage. Reviewing these details upfront helps you avoid surprises and ensures the loan fits within your broader financial plan.
5. Consult a Financial Planner Before Borrowing
A trusted financial professional can help assess whether borrowing against investments is the right move for your specific situation. They can also provide insights into alternative lending options and strategies to manage risk effectively.
Conclusion
Borrowing against your investment portfolio can be a highly effective financial strategy, but it’s not a decision to take lightly. While securities-based lending provides access to liquidity, tax advantages, and lower interest rates, it also introduces risks that require careful management.
By understanding who should and shouldn’t borrow against their investments, maintaining a low LTV ratio, and working with a financial planner, investors can use this strategy wisely without exposing themselves to unnecessary financial stress.
If you’re considering how to borrow against assets and want to explore whether a portfolio line of credit or investment-backed loan is the right fit for you, we invite you to schedule a free consultation today to discuss your options and develop a plan that aligns with your financial goals.
