Borrow, Buy, Die.  

That’s how billionaire’s avoid paying much in taxes. When your assets are growing quickly (10%+ / year), you don’t need to sell stock or pay yourself a salary, you just borrow money at 2% interest / year.

If you have significant wealth, and it continues to grow, you can take advantage of borrowing money at low cost. If there is a downturn in the economy or the market, you have enough wealth to “bridge the gap”.  In other words: you can take advantage of “average returns” over decades because you have the risk capacity.

How does this apply to the rest of us?

• You are already doing this with your mortgage. You borrowed money and have investments in the stock market.
• While the current high market might not be the best time to “borrow for lifestyle”, have financing ready (HELOC, refinance, margin borrowing) in case the market drops significantly. You want to buy while it’s on sale.
• Understand that your mental wellbeing trumps all. Sure, you might “make more money” buy leveraging your house and investing in the market. But will you worry too much? Nothing beats a good night’s sleep.

Resources:

• Buy Borrow Die: How Rich Americans Live Off Their Paper Wealth [WSJ]
• The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax