Chip wrote: ↑Tue Jul 20, 2021 2:35 pm
Dagwood wrote: ↑Tue Jul 20, 2021 1:58 pm
Right, yes I can read. But if the market craters while you have a large loan outstanding and you cannot meet a margin call, you are going to get hosed.
I seriously doubt if FIREchief will be borrowing enough against his assets where a margin call is even a remote possibility. At least that's what I get from reading the thread.
Understood. But if it is for emergencies, and not for account leverage, that would imply you would draw it when you are in some sort of financial difficulty. Add in a negative market event and when the margin call comes, where is the money going to come from if the only reason you received a margin loan is because of that eventuality?
Finally, note that SIPA only covers cash in a brokerage account that is there for the purpose of purchasing securities. If the cash is in the account for another purpose (and you may have indicated that purpose with the account or margin lending documentation), it isn't covered. Of course, big brokers rarely fail. The question then becomes would you put cash in a bank product if there were a chance of no FDIC coverage? Bank failures are also rare, fortunately.
Again, all this raises the question of whether this is an appropriate emergency liquidity strategy. When thinking about finance and negative events, I try to consider not the likelihood of a bad event, but the impact if it were to occur. Cross a street 9x against the light, you save time and aren't injured. On the 10th time, you get hit by a car. How do you view that type of thing? It is admittedly personal. Not trying to argue, but people downplay the risks. Good luck to the original poster, I wish the person well and hope this works out.