Why Do The Top 1% Leverage Their Assets?

Published on 22nd September 2022

For nearly two centuries, the ancient French proverb, “Rien ne réussit comme le succès,” has been popularly used in the English language as “Nothing succeeds like success.” (The exact translation from French is: One success leads to another.)

Leverage is the secret of the top 1% to maximize market opportunities and multiply their wealth. The ultra-wealthy don’t just sit on their pile of assets – they leverage them to deploy more cash into the markets and generate more wealth. Although physical precious metals are recognised as safe-haven assets, J. Rotbart & Co. has introduced the Lombard Loans service which provides bullion owners the ability to leverage their holdings as collateral to obtain cash for liquidity and diversification. 

What are the benefits and how do the ultra-wealthy take advantage of leveraging their assets? 

How Leveraging Physical Precious Metals Assets Helps Generate/Accumulate Wealth

  • Build Additional Income Streams: Markets offer attractive buying opportunities from time to time so investors can deploy the cash obtained by leveraging their bullion and invest in other investment vehicles to further diversify of their portfolio and generate increased cash flows.
  • Offers financial flexibility: During times of bearish market conditions or high inflation, liquidity or capital becomes an invaluable asset. As such, leveraging your long-term investment assets can offer great flexibility of capital where it may be used for unexpected expenses or down payments on assets like Real Estate properties or recreational vehicles such as yachts.
  • Planning of Capital Gains Taxes: In locations, such as the United States, you may take a big capital gains tax hit if you sell your bullion to reinvest it in other asset classes. The super-wealthy don’t like to pay high taxes, just like everyone else who works hard, and instead use leverage to their financial advantage without liquidating their holdings.
  • Enjoy an Asset with Solid Returns: Your physical holdings in precious metals are a safe haven investment, which can continue to deliver significant returns over time. You don’t have to sell them and lose one advantage in the hope to gain another. Enjoy asset ownership with leverage, while fulfilling your additional investment or expense needs. 

How Do Elon Musk, Larry Ellison, Jim Walton, and Other Billionaires Multiply their Wealth Using Leverage? 

When the innovative Elon Musk, the richest man in the world, wants cash, he does not have to sell Tesla shares and pay high capital gains taxes on the sale. He can simply borrow money pledging a part of his shareholding as collateral to obtain lines of credit. The collateral serves as an evergreen credit facility, allowing Musk access to cash whenever he needs it. Musk has pledged more than one-third of his Tesla shares (excluding options) worth close to US$70 billion as of now.

Musk is not the only one using this strategy. The Forbes 400 list of richest Americans includes 32 billionaires who have pledged their public stock holdings as collateral for current or future lines of credit. Other mega pledgers include Oracle chairman Larry Ellison, Walmart heir Jim Walton, and the wealthiest person in private equity, Stephen Schwarzman. 

Among all NYSE and NASDAQ listed companies, as many as 560 CEOs, directors, and shareholders (with more than 5% shareholding) are utilizing leverage by pledging a part of their holdings. The total value of their pledged shareholdings is US$239 billion, translating into an average pledge size of US$427 million. 

Not surprisingly, within this larger group, the ones who do most of the pledging are those who have made it to the Forbes 400 list. And this is probably just the tip of the iceberg because this information only relates to owners of publicly listed shares. Many of the wealthiest Americans – including 232 billionaires listed in 2021 Forbes 400 – hold their wealth primarily in private companies. 

While there is no way to know exactly how common is leveraging assets to borrow among the ultra wealthy, it is “pretty high,” according to Jason Cain, chief wealth strategist at Boston Private. Talking about clients with net worth of more than US$500 million, Cain says that most of these ultra wealthy individuals are aware of the power of leverage and the arbitrage opportunity it provides.  

For centi-millionaires and billionaires, clearly the rewards of leveraging their assets appear to far outweigh the risks. According to Edward McCaffrey, a professor of tax law at USC Gould School of Law, leverage is a perfectly legal strategy for the ultra-wealthy to avoid paying taxes while fueling their wealth growth. Reports relating to leaked IRS data in recent years have shown that many of the richest people in the US paid nothing in federal income taxes. 

“So, the question is, why would anybody not do it?” Prof. McCaffrey asks.

How J.Rotbart & Co. is Helping Clients Gain Leverage

If you have precious metals holdings to use as collateral, J.Rotbart & Co. can provide capital with flexible financing and better terms than most banks. You can receive private loans from us at extremely competitive rates for up to 85% against the value of gold and 75% against the value of silver.

The simple loan approval process and minimal documentation requirements will help you receive the funds quickly and easily. Paying back the loan is also much simpler with J.Rotbart & Co. compared to bank loans. Lending periods begin at three months with a range of payment options, including monthly, quarterly, bi-annually, or annually. Plus, you don’t have to worry about making strict monthly installments or suffering severe fees for defaulting like the banks.

Secure Storage Vault at Le Freeport, Singapore

J. Rotbart & Co. Case Study: Client X (not named for confidentiality reasons )

  • Buys gold/silver worth US$650,000 with storage in multiple locations.
  • Takes out a Lombard loan for 85%/75% value of the holdings. 
  • Uses the funds to diversify into various investment vehicles, such as private equity, business turnarounds or restructuring, and other growth market opportunities. 
  • Enjoys benefits of the physical precious metals as safe haven assets whilst increasing appreciation opportunities through other investment vehicles.

Get Immediate Liquidity from J.Rotbart & Co. without Selling Your Bullion

Debt can be beneficial in certain circumstances such as leveraging your assets instead of selling them and paying taxes. J.Rotbart & Co. provides immediate liquidity instead of long paperwork. As specialists and experts in precious metals, we pride ourselves on providing tailored solutions with the highest quality client service. Call J.Rotbart & Co. today or contact us online to learn more about using your precious metals as collateral for loans from us.

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Disclaimer: Lending services are provided by J.R. Trading (International) Limited, under Hong Kong SAR Money Lending License number 0939/2021. 
Warning: You have to repay your loans. Do not pay intermediaries. 
Phone number for handling complaints: +852 2104 9255