Diversity is the key to reducing risk according to Equities First Holdings LLC. This line of thinking is appreciated by anyone who has weathered ups and downs in their financial portfolio over the past few years. No one wants to see their lifetime savings wiped out because all of their financial eggs were in one basket.
Anyone who watched his or her “blue chip” portfolio suffer during the recession knows that this is not the guaranteed investment it once was.
Investors have more options for their portfolio choices than it appears at first glance. Likewise, advisors can offer a better customer experience by offering more options. Depending on the situation, it is a savvy strategy to look at the potential in a stock loan to see if it will be the right fit for them.
Money for Today
There are many reasons to borrow from your stock account. It could be to place a deposit for a new home, to help defray college and living expenses for a child (or children), or to consolidate debt at a lower rate. The interest rate on a stock loan is considerably lower than most credit cards or lines of credit.
For a small business, getting a conventional loan is becoming increasingly more difficult. Financial institutions are reluctant to lend for expansion, equipment purchase or even operating capital. Typical forms of security are just not as accepted as they once were.
Real estate developers know how tough it is to get bridge financing or emergency funds should a buyer default on a building. A stock loan could be the difference between staying afloat and watching years of hard work dissolve.
Unseen Liquidity in Stock Loans
It is clear that business owners and individuals need alternative options when planning for their future. For those that hold a securities portfolio of $500,000 or more and want to put that equity to work, a stock loan may be their best choice.
Stock loans are often preferred over personal or home equity loans, as they can provide greater flexibility and better rates. Equities First Holdings LLC explains that securities-based loans typically have a 3-year term with interest rates that can be as much as 50%-75% less than a personal or mortgage-backed loan. For example, a $500,000 stock loan will have an interest rate as low as 3%, compared to that of a personal loan, which can be as high as 7%-9%. Over the life of the loan this could add up to over $70,000 in interest savings.
Stock Loans Provide Options
A large personal loan often comes with restrictions from the financing company that limit where the money can be spent. Many financial institutions will require the money to be re-invested into property or some other type of substantial purchase. Loans secured with equity rarely come with any of these restrictions.
Once the stock owner and lender have agreed on terms and collateral, the equities ownership is transferred to Equities First Holdings LLC and in as little as 3-5 days, the borrower will receive the funds. There are no conditions attached so the borrower is free to use the money as they see fit.
Stock Price Benefit
For many, the decision to take a stock loan comes from the belief that the price of the security will appreciate in the coming years. If the equity were to increase in value, the borrower retains all of the growth. This can significantly increase the amount of equity that is returned at the end of the term of the loan. If the stock appreciates over the term of the loan, the borrower would benefit with no additional fees or closing costs upon repayment.
Conversely, if the equity declines meaningfully in value, the borrower has the option of walking away and keeping the loan proceeds with no further obligation.
Investing for retirement is a very personal decision for most investors. There are often more retirement investing options than the casual investor is aware of. When investing in your future, companies like Equities First Holdings LLC believe that the more options you have, the better prepared you are to enjoy and appreciate your golden years.