Your kids inherit the stock at its current value and immediately sell $10M worth to pay off original loan
And the bank says “um, what about the rest?” In the 1970s and early 80s the inflation rate was, at times, above 10%, so your loan’s interest rate would have been above that. But say on average the loan’s interest rate was 5% per year over 30 years… the bank isn’t going to be content for just the original $10M.
That’s what success looks like. But, you don’t know if you’re going to be successful when you take out the loan. If there’s a market downturn you’re on the hook for the loan and your portfolio has crashed. If you sold a few stocks instead of taking out a loan, you’re insulated from that possibility.
And the bank says “um, what about the rest?” In the 1970s and early 80s the inflation rate was, at times, above 10%, so your loan’s interest rate would have been above that. But say on average the loan’s interest rate was 5% per year over 30 years… the bank isn’t going to be content for just the original $10M.
All that matters is that your portfolio grows faster than the interest rate.
That’s what success looks like. But, you don’t know if you’re going to be successful when you take out the loan. If there’s a market downturn you’re on the hook for the loan and your portfolio has crashed. If you sold a few stocks instead of taking out a loan, you’re insulated from that possibility.