How the wealthy borrow against stock instead of selling.

Wealthy investors avoid selling appreciated shares — which would crystallise capital gains — by borrowing against them instead. Pledging a portfolio as collateral for a Lombard loan unlocks cash while keeping the assets, their dividends and their upside intact. The strategy, sometimes called ‘buy, borrow, hold’, defers disposal and preserves long-term compounding.

The strategy in one sentence

Rather than sell shares to raise cash, wealthy holders pledge those shares as collateral for a loan and spend the loan — keeping the assets, and deferring the disposal a sale would trigger. The loan is a Lombard loan; in institutional and US markets the same instrument is called securities-backed lending. Nothing about it is exotic or aggressive. It is the same secured lending a private bank offers any substantial client, applied deliberately and with a long horizon in mind.

Why selling is the expensive option

Selling looks like the obvious way to turn shares into cash, but for a long-term holder it is often the costliest route. Three reasons stand out.

First, a low cost base. An early shareholder or a founder may hold stock acquired at a fraction of today’s price, so a sale realises the entire gain at once rather than a slice of it.

Second, tax on that gain. In many jurisdictions a disposal of appreciated shares crystallises a capital gains charge — the very tax that would otherwise stay deferred for as long as the shares are held. This is general information, not tax advice; the treatment depends entirely on your jurisdiction and circumstances, and you should take professional advice on your own position. We discuss the mechanics in borrowing against shares and capital gains tax.

Third, the opportunity cost. Selling ends the compounding: the future appreciation, the dividends, and the voting control all leave with the shares. For a holder who believes in the asset, that is often the most expensive loss of the three, because it is invisible on the day and permanent thereafter. A pledge sidesteps all three: the gain is not realised, the disposal is deferred, and the upside and income stay with the holder. Our note on how to borrow against shares without selling sets out the comparison in detail.

How “buy, borrow, hold” works in practice

The strategy has a nickname: ‘buy, borrow, hold’. You buy or hold quality assets for the long term; when you need liquidity, you borrow against them rather than sell; and you continue to hold, letting the position compound. The loan funds the spending — a purchase, an investment, a tax bill, a diversification — while the portfolio keeps working.

In practice the holder pledges a portfolio of listed shares or funds to a lender, draws a Lombard loan against a fraction of its value, and either services or rolls up the interest. The loan is repaid later from a liquidity event chosen on the holder’s own timetable — a partial sale in a lower-tax year, a dividend, a refinancing, or the proceeds of whatever the loan funded. The essential advantage is control over timing: the holder, not the market or a fixed schedule, decides when a disposal happens, if it happens at all. The mechanics of the underlying instrument are covered in our guide to what a Lombard loan is.

A simple illustration shows the appeal. A founder holding a large, appreciated stake wants to buy a home. Selling shares to fund it would realise a gain and trigger tax on the whole of it, and would permanently reduce the stake. Instead the founder pledges part of the holding, draws a Lombard loan for the purchase price, and keeps every share. The stake continues to compound; any tax on the eventual gain is deferred until shares are actually sold; and the loan is repaid later from a dividend, a bonus, or a measured sale timed to suit. The house is bought without the position being touched.

Where Lombard loans fit for founders & family offices

The holders who use this most are those with large, concentrated, appreciated positions and a long horizon.

Founders and executives hold stock in a single company, often at a very low cost base and often subject to lock-ups or disclosure rules. A Lombard loan lets them raise cash for a house, a diversification, or a tax liability without signalling a sale of their own company’s shares or surrendering the upside they helped create.

Family offices use it as treasury management: borrowing against a diversified securities portfolio to fund a capital call, a co-investment, or a property purchase, while the portfolio stays invested and intact across generations.

Controlling shareholders use it to raise liquidity without diluting a stake or crossing a disclosure threshold. In each case the logic is the same — the asset is worth more held than sold, so the holder borrows against it rather than parts with it.

The risks nobody mentions

The strategy is sound, but it is not free of risk, and the marketing version rarely says so.

The first risk is the margin call. Because the loan is secured on the shares, a fall in their value raises the loan-to-value ratio, and beyond a threshold the lender can demand more collateral or a partial repayment — and, if it is not met, sell the pledged stock at the worst possible moment. A concentrated single-stock pledge is especially exposed. We set out the mechanics and the defences in what happens if your shares fall.

The second is interest. A Lombard loan is priced at a floating reference rate plus a spread; if rates rise, the cost of carrying the loan rises with them, and rolled-up interest compounds the balance. A strategy that works comfortably at low rates can look very different at high ones.

The third is behavioural: borrowing against an asset you never intend to sell can quietly become permanent leverage. Used with discipline — a conservative advance rate, a real repayment plan, and a buffer against a fall — the approach is a legitimate liquidity and tax-deferral tool. Used carelessly, it is simply leverage on a concentrated position.

Who it is and isn’t for

Borrowing against stock instead of selling suits a holder with a substantial, appreciated, liquid portfolio, a long-term conviction in the assets, and the capacity to withstand a fall without being forced to sell. It fits founders, controlling shareholders, and family offices managing concentration, timing, and tax deferral.

It is not for someone who needs to exit the position anyway, whose holding is illiquid or unlisted, or who could not meet a margin call in a downturn. And it is not tax avoidance dressed up as finance: it defers a disposal that may still happen later, on the holder’s terms, with the tax paid when the gain is finally realised. It is a legitimate, long-established way to manage liquidity around a valuable holding — nothing more, and nothing less. As always, the tax treatment depends on your jurisdiction and circumstances, and this is general information rather than advice; our note on the tax treatment of Lombard loans covers the ground in more depth.