7/ The most common investment plan in America is the 401k. Many would like to cash out their 401k to get into crypto.
What if you didn't have to?
Most 401k plans have a loan feature where you can borrow 50% of your account balance up to a total $50k loan.
What's the catch?⬇️
8/ You will sell mutual funds in your 401k to create the liquidity
You pay monthly principle & interest (lately 3%-4%). This interest goes straight back into your 401k, but it creates a small double tax wen you take out again.
Often the loan is amortized on a 5-year arc, but 👇
9/ If you quit or get fired then your 401k loan must be paid in full by that year's tax filing either:
- Next April
- Or October (if you go on extension).
Otherwise, the outstanding balance will become subject to tax at your highest marginal rate plus the 10% early WD penalty.
10/ It seems scary, but if you got fired (or maybe just quit cuz you're crypto rich):
wouldn't you be in a lower tax bracket that year to absorb the tax + penalty?
Or you could borrow against your crypto to pay back the 401k loan until you can roll your account to the next job.
11/ In @etrade, you may have stocks you don't want to sell. Or maybe you own stocks/funds you wish to sell, but you don't because of embedded capital gains tax.
An optimized Margin-Loan is a way to unlock equity & it's tax free liquidity since it's merely a loan against an asset
12/ Reg-T margin allows borrowing up to 50% LTV. If your loan exceeds this, the broker will liquidate stocks to put you below the 50% LTV threshold.
Borrowing 25% means you can lose 50% value before any liquidation. If you can quickly infuse cash, maybe you can push LTV to 37%.
13/ Margin rates from big brokerages houses are terrible.
This is largely cuz their profits have compressed after offering "free trades" (even though they make a cut off the spread or get paid for non-optimal order flow).
They now seek revenue from cash deposits & margin loans
14/@IBKR margin rates get even lower than 1.58% the more you borrow (see table).
Since margin interest carries stocks, it's "investment interest" & therefore tax deductible (in the US). So 1.58% may feel like 1%, or 1.08% like 0.54%.
15/ For the max margin LTV capacity you can opt into "portfolio margin" if your @IBKR account > $100k.
Whereas Reg-T margin can get you 2:1 leverage (@ 50% LTV), Portfolio margin can get you 6:1 leverage for stonks or more if your positions are diversified or hedged w/ options.
Can you imagine the magnitude of @Cephii1-Martingaling right now on say FB & COIN using portfolio margin?
He'd be a freakin' board member if they dip much further.
17/ Your LTV threshold w/ portfolio margin is dynamic based on the real-time implied volatility of your composite portfolio.
As volatility⬆️your LTV capacity will⬇️. So I'm not saying you should even get close to 6:1, but at least you'll have a lot more cushion wen borrowing.
18/ That's why I prefer a diverse array of asset classes wen borrowing w/ portfolio margin:
Lack of correlation maintains borrowing power to buy up systematic dips or to protect a crypto loan.
19/ Bolster buying power by selling covered calls.
They lower the implied volatility liquidation calculation by bringing you closer to delta neutral (long stock/short call).
You limit some potential growth but generate income. HODLers can sell calls 1-2 months out @ local tops.
20/ Before crypto I considered Whole Life cash value my stablecoin.
Today whole life earns me 4%-5%, but since it's tax-sheltered it feels like 8%-10%.
Plus it pays heirs 5x if I die. If I'm too sick to work again, I can get an advance on my death benefit tax free while alive
21/ Every whole life policy has a built-in loan mechanism similar to⚓wen the net cost to borrow is slightly +/- (see snip below)
But @thebancorp & @AmerisBank have turnkey lines of credit where you can borrow against 95% of your cash value between 2.75%-3.5% depending on size
22/ Indexed Universal Life (IUL) often tracks the S&P 500 index w/ guardrails:
- Floor guaranteed @ 0% (less insurance costs averaging around 1%-1.5%)
- Cap currently ranging from 8.5% - 11%
Caps will rise w/ interest rates since Ins. Co's get more yield to buy these hedges with
23/ Whole/universal life gets a bad rap for being expensive.
When paying the max allowable IRS premium limit + using cheaper term riders to lower costs, it creates a less volatile tax-efficient alternative to traditional stocks & bonds.
AND you can borrow 90+% of your equity
24/ Mortgage refi's & HELOCs can be ideal to lock in 2022 rates.
Don't overpay principle, put it to work instead! Am I really in debt if I have that money in a safe yield-bearing asset?
For me that's life insurance. I did the math & I can pay off my mortgage quicker if I want
25/ Always keep dry powder w/in your diversified "positive feedback loops" to manage different loans.
If you enjoyed this thread please Retweet the top tweet.
For questions on life insurance or Hutch's availability for private hourly education, you can DM his associate @IBCguy
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SPY is an ETF owning stocks to tracking the S&P 500 index (linear)
VIXY is an ETF owning futures contracts tracking the VIX, which measures market sentiment through rolling 30-day put-option pricing on the S&P 500 (non-linear).
2) SPY is stable since ETFs owning stock don't have to roll contracts every month
VIXY on the other hand is an ETF owning derivatives tracking yet another set of derivatives.
So it would be nearly impossible to find the right ratio to be delta neutral, and even if you did...
Quick update that my "aUST+Short-mSPY" strategy @mirror_protocol worked like gangbusters. Closed all positions Monday for a tidy "uncorrelated" profit so I could manage LTV% during the crypto dump.
Scroll thru my "short" 🧵👇 for what I learned & ways to improve the strategy. 1/
2/5 I know there's a thriving Discord community fluent with the "LUNAonomics" strategy.
But Discord can be really daunting!.
Thankfully, "DanB" @danbryan80 spent about 45-min walking me through how it works and it's quite cool
3/5 Remember @Shigeo808's axiom of opportunity: "Opportunity doesn't disappear...but it will migrate!"
The tools & tactics when I started this vid 2 weeks ago already morphed, not to mention the upcoming release of @prism_protocol and @mirror_protocol using $LUNAx @staderlabs