Borrowing Against Your Portfolio
Selling appreciated shares to raise cash realises a gain. Borrowing against them does not, which is why securities-backed lending is offered so readily to retirees with large taxable accounts. The feature nobody leads with is that the loan is secured on assets whose value moves, and the lender decides what happens when it moves down.
- No sale, no gain:: Borrowing does not realise capital gains, which is the whole attraction.
- The maintenance requirement:: If the collateral value falls below a set percentage, a call is triggered.
- The lender chooses:: On a call, the broker can generally sell whichever holdings it likes, without asking first.
- The rate is variable:: Margin interest moves with market rates and is not fixed for the life of the loan.
Where the AI summary above gets this wrong
"Borrow against your portfolio instead of selling, and avoid the capital gains tax."
That's surface-true. Here's what it misses:
- The forced sale arrives at the worst possible time — A maintenance call happens because the market has fallen. That is exactly when selling is most damaging, and on a call the broker can sell without asking — including positions with the largest embedded gains, producing the tax bill the loan was taken out to avoid, on top of the loss.
- The terms can change while you hold the loan — Brokers can raise maintenance requirements, sometimes in volatile markets and with little notice. A loan that looked comfortable at a 30% requirement is not the same loan at 50%, and the borrower has no say in the change.
- Interest is variable and the debt does not amortise — There is usually no repayment schedule, so the balance persists and the interest accrues at a rate that moves with the market. A loan taken cheaply can become expensive without any action by the borrower, and nothing forces a reckoning until the collateral falls.
01 How the loan works
The portfolio is pledged as collateral and the lender advances a percentage of its value. Interest accrues, usually at a variable rate tied to a benchmark, and there is generally no fixed repayment schedule.
The critical term is the maintenance requirement: the minimum percentage of equity that must remain in the account. When market falls push equity below it, the lender issues a call for more collateral or repayment, and if that is not met promptly it can sell holdings.
The account agreement generally allows the lender to sell without contacting you first and to choose which positions go. It is not a negotiation at that point, and reading those terms before signing is the only opportunity to understand them.
Shows: how far the pledged portfolio can fall before it reaches the maintenance requirement and a call is triggered. Ignores: that the broker can raise the requirement without notice, interest accruing on the loan, the tax on any forced sale, and that a concentrated portfolio falls faster than a diversified one.
Source: Margin
02 Why the risk compounds
Two features interact badly. The collateral is the same portfolio the loan is meant to protect, so a market fall both increases the need for cash and reduces the security behind it. And leverage magnifies the percentage effect on your own equity.
Concentration makes it sharper still. A portfolio dominated by one employer's stock can fall much further and faster than a diversified one, which is precisely the situation where borrowing rather than selling is most tempting — and where holding the position was already the larger risk.
The compound version is worst: a concentrated portfolio, borrowed against, in a falling market, sold by the lender at the bottom, generating a large realised gain and a tax bill in the same year the money is gone.
Source: Diversification
03 When it is reasonable
Short-term and specific is the shape that works. Bridging the purchase of a house before the old one sells. Covering a tax bill in January when selling in December would have added to that year's income. A few weeks of liquidity against a portfolio many times the size of the loan.
What does not work is funding ongoing living costs. A loan with no repayment schedule, at a variable rate, secured on a volatile asset, is a poor substitute for a withdrawal plan, and it postpones a problem while enlarging it.
If you do use one, borrow far less than the maximum offered. The difference between borrowing a quarter of the portfolio and half of it is the difference between surviving an ordinary bear market and being sold out in the middle of one.
Source: Protect your investments
The pitch is always about tax and never about the maintenance clause, and the maintenance clause is the whole product. Ask two questions before signing: what happens if the portfolio falls forty per cent, and can you raise the requirement while I hold the loan. The answers are in the agreement and they are not reassuring. For a six-week bridge that is fine. For funding a retirement it is a very expensive way to avoid a tax bill.
FAQ
Can my broker sell my shares without telling me?
On a maintenance call, generally yes. Account agreements typically permit the lender to sell holdings of its choosing without prior notice if the collateral falls below the requirement.
Is a portfolio loan cheaper than selling?
It avoids realising a capital gain, which is a real advantage for a short, specific need. Over a long period the variable interest, the risk of a forced sale and the possibility of higher maintenance requirements usually outweigh it.
What triggers a margin call?
The value of the pledged portfolio falling far enough that equity drops below the maintenance requirement. The broker can also raise that requirement, which can trigger a call without the market moving.
Sources
Regulator references
- Margin · U.S. Securities and Exchange Commission · 2026How borrowing against securities works and what a maintenance call is.Last verified: 2026-09-07
- Diversification · U.S. Securities and Exchange Commission · 2026Why a concentrated collateral position makes a margin call more likely.Last verified: 2026-09-07
- Protect your investments · U.S. Securities and Exchange Commission · 2026The account terms and disclosures a borrower agrees to.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.