Sara Kalsman, CFP®

How to leverage your taxable investments into lending Apr 22, 2025 9:00:00 AM Examining the pros and cons of the Securities-Backed Line of Credit (SBLOC) Editor’s note: SBLOCs are offered by The Bancorp Bank, N.A., Member FDIC, to Betterment clients. Betterment is not a bank. See more below. Sometimes in life, despite your best-laid plans, you need quick access to cash. Say you bought a new home and need to bridge the gap until you sell your old one. Or a smart business opportunity presents itself. If you have a sizable amount of investments in taxable accounts, you can leverage them into a Securities-Backed Line of Credit (SBLOC), a little-known but increasingly-available form of short-term lending. Unlike many conventional loans, SBLOCs typically provide access to the line quickly after approval. And crucially, they keep your assets invested and avoid triggering capital gains taxes1. If the market drops, that means you avoid locking in those losses. And if the market goes up, that growth can help offset some of your lending costs. Plenty more details exist for this type of borrowing, so keep reading to learn more. The basics of SBLOC borrowing SBLOCs are revolving lines of credit you can use over and over again, as opposed to the one-time nature of many loans. Many lenders require at least six-figures’ worth of taxable investments to qualify for one, with credit limits often falling somewhere between 50% and 95% of the investments’ value depending on how risky they are. Betterment SBLOC powered by The Bancorp Minimum assets needed Approx. $150k in taxable assets or less, depending on their risk profile2 Maximum credit/loan available Approx. 50-95% of taxable assets2, depending on their risk profile Interest rate Variable rate3 based on assets committed Repayment options Flexible As mentioned above, one of the key benefits of SBLOCs is that your taxable assets stay invested, giving them the chance to grow. SBLOCs are also more multi-purpose than many loans, with one notable exception being that you can’t use them to buy more securities or to fund margin loans. In addition to versatility, they tend to offer competitive interest rates lower than that of a personal loan or credit card. Our SBLOC offering, which is powered by our banking partner The Bancorp, has a variable interest rate that’s tied to The Wall Street Journal prime rate and discounted based on the amount of taxable assets committed4. Short-term lending does come with risks, however, and speaking with an advisor can help you weigh those risks relative to your specific situation. That’s in large part why at Betterment, an SBLOC is offered through our Premium tier, which gives you unlimited access to our team of advisors. When (and how) the bill comes due SBLOCs offer relatively flexible payback terms, with many only requiring monthly interest payments and some (like The Bancorp’s) with an option to add the interest to the loan balance instead of paying it right away. This is known as “capitalizing” the interest. Bear in mind that if the value of your investments drops enough, your lender may make what’s called a “maintenance call” and require you to reallocate your portfolio to obtain a higher borrowing power, provide additional collateral or sell some of your assets and pay any applicable capital gains tax1. The bottom line of borrowing this way If you’re looking for quick access to capital without disrupting your investment strategy, then an SBLOC may be right for you. And if you do come to that conclusion, then we and our trusted banking partner, The Bancorp, are here to help. They were the first bank to offer SBLOCs to independent advisors in 2004, broadening access to this type of borrowing. And their simple application process can generally provide a quick turnaround, helping fund today’s plans without touching tomorrow’s dreams.

Why saving for your retirement isn’t a solo climb Sep 24, 2024 11:11:26 AM And why the summit is smaller than you think. Figuring out how much you need to retire can feel like an exercise in futility, primarily because of two reasons: It’s a moving target. Our needs and, by extension, our spending changes as we age. It’s a Very Big Number. And Very Big Numbers can seem so far out of reach. So let’s simplify things for a second. We’ll share a way to quickly crunch your retirement savings number, how to make it seem less scary, then demonstrate how we do things in the Betterment app. Revising the 25x rule This popular shorthand says to multiply your annual expenses in retirement by 25 to land on your number. It’s the inverse of the 4% rule, another quick calculation for how much of your investments you can sustainably spend each year. They're both ballpark numbers, and if you’re in the early or even middle stages of your financial journey, they can be helpful. But the 25x rule has a hitch, and it’s the challenge of knowing exactly how much we’ll spend in retirement. Luckily for us, we can approximate these shifts by looking at our fellow Americans’ average spending levels by age. When we do that, we see that our spending tends to peak in middle age and declines as we approach the traditional retirement age of 65. In short, you’ll likely spend less in retirement than you do now. And that’s good news! It means you probably need less than you think to retire. So take your current spending—that’s pre-tax income, minus taxes, minus retirement saving—and adjust depending on when you want to retire before multiplying by 25. That’s your age-adjusted retirement savings number, roughly speaking. Now let’s make it seem less like Mount Everest. Because we’ll let you in on a little secret: (You don’t need to save the entire amount) As an example, we’ll make your Very Big Number a Nice Round Number, too. Say you need roughly $2,000,000 for retirement. Using the 4% rule, that’s $80,000 of spending each year. Seeing that many zeros in a savings goal can be demoralizing. But what if we said you weren’t on the hook for all of it? That a generous friend was more than willing to help. And not only help, but shoulder the majority of the load. They just work slowly, so you’ll need to be patient. Your friend, as you may have guessed, is compound growth. And you may be shocked by their share of your retirement savings. Assuming you reach your goal in 30 years, saving $2,500 a month and earning a 5% inflation-adjusted annual return, here’s how much you would have directly saved, compared with how much your “pal” chipped in. You read that right. In this scenario, compound growth is responsible for more than half of your retirement saving. Sticking with our Mount Everest metaphor, that’s like a sherpa giving you a piggy-back ride not long after leaving base camp. Now, don’t get us wrong—$900k is not nothing. But it certainly sounds more doable than $2 million, doesn’t it? And that $2,500 saved a month? That just so happens to be 2024’s combined maximum contribution for a 401(k) and IRA. Either way, it’s best to not dwell on a Very Big Number for too long. Back-of-the-napkin exercises such as these serve a purpose, to a point. So our retirement planning advice, along with adding way more nuance to your calculations, encourages you to focus simply on your desired annual spending in retirement. We help you chart a course to get there and automate your approach, all so you can forget about finances for a second. Because compound growth grows the fastest when you’re not looking.