Stock and options trading is addictive, and people often are excited by short term returns. However much of the returns are lost to the same volatility that provided them when someone ends up on the wrong side of the trade. If there is profit left, much of it is collected as taxes on short term capital gains, one of the most expensive categories for taxation.

When you own an asset you can borrow against, then you don’t have to sell it to access your capital, or and this is really important, you also don’t have to sell or pay taxes to access the value of the growth.

When you own an asset you can borrow against, you can still continue to benefit from the asset’s price appreciation, and you continue to benefit from dividends, rent, or other cash generating strategies.

The best assets in the world are shares of an S&P 500 ETF. Not only is it diversified (though it does suffer from concentration due to the tech sector becoming so profitable), companies that falter are switched out and replaced by companies that are rapidly growing. Owning shares of the S&P 500 allows you to borrow instantly, without a credit check, without a minimum payment, without a due date. The interest rate is low, lower in fact than the average return of the S&P 500, and by a significant factor.

This effectively creates a negative interest rate. When you carry debt at negative rates you are being paid to borrow money.

This concept is so foreign to most people they cannot understand it, but once you understand how interest rates work, and that it is possible to finance something below the rate of return, then you would understand that logically it makes sense to borrow as much as possible as long as the activities you finance with the funds continue to generate revenue that exceeds the cost of the interest on the borrowed money.

Since debt borrowed against a portfolio is collateralized by the shares held inside, the debt can finance itself. For example if you borrow $4000 of your portfolio value, you still own the shares. As those shares increase in value, hypothetically by 12% a year (average return of the S&P), you continue to have access to the growth for future borrowing. The loan itself may be at 5%, so that means that while the loan resulted in a smaller return. (12%-5% = 7% return) the return was still positive.

But what would you do with the $4,000? If used to hypothetically buy inventory, or bars of silver, you would earn another return on the borrowed sum.

This is how leverage works and when you understand this you realize you can borrow money below cost and in that case you would logically never pay it back, as paying it back would kill the chicken laying the golden eggs.

Carrying lots of cheap debt puts you at risk of several things. one of which is being forced to sell at inopportune times. This is why it’s essential to diversify assets, and to own some that can be held outside of the market and unencumbered by debt.

When you borrow you’re a slave to the lender. They can change the rate and terms any time they want, which is why using this strategy of maximizing how much optimal negative rate debt you carry is risky, requires prudence, and conservative borrowing habits. One should only borrow if they are going to use the funds to either pay off higher rate debt or buy another asset.