Why consider a Securities Backed Line of Credit (SBLOC) for your portfolio?

October 3rd, 2018

By Marcus Ashworth, CFP®


Most recently during one of my reviews with a client, I was asked what I thought about them purchasing a condo on margin for their trust. Their trust allowed for it, and they did not want to disrupt the portfolio strategy and/or generate unnecessary capital gains for the purpose of buying some real estate. Knowing rates have risen and will likely to continue to rise until 2019, I was requested to research the idea and get back to them shortly.

I was shocked to discover one of our custodians was charging 8.0% interest, while the other custodian we used was at 9.0% interest. Not an attractive scenario by any stretch, considering expensive fundamentals of the equity indices.

However, both custodians made available another type of loan product with no closing costs, called a Securities Backed Line of Credit (SBLOC). This offered my clients a higher loan to value ratio than a margin accounts afforded. The rates were drastically lower as well.

One loan product was tied to LIBOR + 2.75% which equated to a current rate of 4.84% and the other was .75% under prime, which brought the loan rate to 4.75%, both more compelling than the respective margin rates. Once we calculated tax savings on the interest (the after-tax cost of capital) the respective rates went down even further to the 2.7% area.

A Securities-Backed Line of Credit (SBLOC) gives you the freedom to access the value of your investment portfolio, without disrupting the investments within it. You can use an SBLOC for almost anything, except the purchase of securities. Similar in structure to a margin loan, available to individuals, trusts (entity process/pricing may differ), but typically no income verification, no application fees nor monthly charges.

*JP Morgan, Weekly Market Recap, August 20th, 2018.


Advisory services offered through Ashworth Sullivan Wealth Management Group (“ASWMG”), a Registered

Investment Advisor.

Securities offered through Triad Advisors, Member FINRA / SIPC

ASWMG and Triad Advisors not affiliated