In today’s issue:

• Market Minute - What do mortgage spreads say about the real estate market in 2025?

• Deep Dive - Discover how one reader can buy a $1MM home without tapping his investments or paying taxes

• Wealth Hack - How can you access wealth tax-free using your portfolio?

• Brain Food - How can the yield curve signals changes in the real estate market?

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WEEKLY WISDOM

MARKET MINUTE

Mortgage spreads still near decade highs

Even after the Federal Reserve cut rates by 0.50%, banks are still charging high premiums on home loans.

Banks are pricing the current real estate market at nearly the riskiest level in a decade, how can we tell?

The 10-year Treasury bond is a major factor in mortgage rates. Banks can either lend money to homebuyers, which is riskier, or buy Treasury bonds, which are considered safe.

The difference between these two options is the risk premium banks get for lending to homebuyers instead of investing in Treasuries.

By looking at the gap between the 10-year Treasury yield and mortgage rates, we can tell how risky banks think the real estate market is.

Right now, that gap is near the highest it’s been in the last 10 years, showing that banks see today’s housing market as almost twice as risky as it was in 2022.

This is bad news for buyers, since a 1% increase in interest rates can raise their monthly payment by 13%. It’s also tough for sellers who are already dealing with a slower market.

DEEP DIVE

How Can I Buy a Home and Still Retire Early?

The Big Question: Can I afford to buy a $1MM home with a $4MM investment portfolio and $160k/year income if I want to retire early?

Carl is a reader who’s in a strong financial position. He has a good job, a solid income, a sizable portfolio made mostly of his company’s stock options, and manageable living expenses. He’s thinking about buying a home that will cost around $1 million, but he also wants to retire early in a few years.

Can he do both—retire early and buy the home he wants?

The Details

• Early 40’s

• $165k/year income

• $4.1MM in taxable investment accounts

• $500k in retirement accounts

• Spending $90k/year

• Saving $75k/year

• Exploring buying a $1 million home

• Hoping to retire early in a few years

With today’s interest rates, his mortgage payment would be about $5,000 a month. That’s roughly 36% of his income, which is a bit high. Ideally, we’d want that closer to 30%, or around $4,125 a month.

So, how can he get there?

Option 1: Sell Investments and Pay Cash for the Home

The obvious solution is simple—sell some stock and buy the home with cash.

But that doesn't take into account Carl's goal to retire early.

Right now, he's on track to where his safe withdrawal rate (SWR) will exceed his current income in just a few years. With $4 million invested and a 3.5% SWR, he could comfortably live on about $140,000 per year in early retirement.

However, if he pays cash for the $1 million home, he could only live on $105,000, or he would need to work longer to save more.

It gets worse. Selling assets to buy the home will trigger taxes on the investment gains, meaning Carl may need to sell up to $1.2 million worth of investments to cover the purchase.

That’s a 30% hit to his portfolio. Surely, there's a better option?

Option 2: Sell Investments and Make a Big Down Payment

What if Carl wants to lower his mortgage payment to a level that's comfortable now and in retirement?

A 35% down payment of $350,000 would drop his payment to around $4,100/month, which is more manageable.

This approach wouldn’t derail his early retirement plans, allowing him to retire in less than five years. However, the tax issue remains.

Carl would still face about $70,000 in taxes on the sale of his investments, effectively increasing the cost of the home by 7%.

Better than the first option, but still not ideal.

Option 3: Borrow the Down Payment from His Brokerage

If Carl gets creative, he can avoid the tax hit by borrowing against his investment portfolio to make the 35% down payment. How does this work?

Most brokerages offer margin loans or pledged asset lines of credit with a variable rate based on SOFR. Brokerages love it because it generates extra income, and clients love it because they can access cash without selling assets, letting their investments keep growing.

At today’s rates, Carl would pay about 6% on his $350,000 loan—roughly 8.5% of his portfolio. After everything, his investments would grow at 7.5% instead of 8%, a small difference.

By choosing this option, Carl can:

✅ Buy the home he wants now

✅ Only delay retirement by 2-3 years

✅ Avoid taxes on the down payment

✅ Have a comfortable payment with his current income

Very manageable…

WEALTH HACK

Tap Your Investment Portfolio with a Margin Loan

How Mark Zuckerberg Bought a $1B Yacht Without Selling Stock or Paying Taxes

Let’s say you have $100B in stock, but selling it would cause panic among your shareholders and tank its value. What do you do?

In 2012, Mark Zuckerberg had the answer.

Instead of selling shares, he took a margin loan against his stock in Oracle to buy a $1B yacht. He then depreciated the yacht, creating a net negative tax on the transaction, sparking calls for a “Zuckerberg tax.”

Here’s how it worked:

• $100B Stock Portfolio

• $1B Margin Loan (1% of equity)

• Buy a depreciable asset (like a yacht)

• Took $150M in depreciation, offsetting other income

• Paid loan interest from investment returns

• Kept his stock, allowing it to keep growing

• Reassured shareholders by not selling stock

This isn’t just for billionaires. Margin loans are available to most investors through brokerages.

Borrowing against your portfolio isn’t a taxable event, allowing you to access cash without selling investments. This has two big advantages:

• No taxes now – Since no asset sale occurs, there’s no capital gains tax.

• No taxes later – Upon death, the asset's value resets to market value, avoiding capital gains taxes when passed to your heirs.

To do it right, you need to keep a few things in mind:

• Have a large portfolio – This strategy makes sense with significant assets, not a few thousand dollars.

• Borrow conservatively – Don’t borrow more than a small percentage to avoid a margin call.

• Negotiate your rate – Some brokerages, like Interactive Brokers, offer competitive rates. Shop around.

• Borrow against stable assets – Use safe investments, not volatile ones.

• Limit your collateral – Only pledge what’s needed plus a healthy buffer, and keep some investments at another brokerage.

• Read the terms – Make sure they can’t come after your other assets in case of a margin call.

https://www.nytimes.com/2012/02/08/opinion/the-zuckerberg-tax.html

https://www.flclaw.net/why-mark-zuckerberg-may-never-pay-taxes-again-buy-borrow-die/

BRAIN FOOD

Understanding the Yield Curve

How the Yield Curve Affects the Economy

The yield curve is a chart that shows the interest rates of U.S. Treasury bonds over different time periods, from short-term (3 months) to long-term (30 years). The shape of the curve gives insight into the economy.

There are three main types of yield curves:

1. Normal Yield Curve: This slopes upward, meaning long-term bonds have higher interest rates than short-term ones. This usually indicates a healthy economy where investors expect steady growth.

2. Flat Yield Curve: Here, both short- and long-term bonds have similar interest rates. This can signal uncertainty about the economy's future.

3. Inverted Yield Curve: This slopes downward, with short-term bonds offering higher rates than long-term ones. Historically, an inverted yield curve has predicted a recession.

Why It Matters

The yield curve influences borrowing costs and signals economic conditions. A normal curve shows confidence in growth, while an inverted curve suggests a recession may be coming. When the curve inverts, borrowing can become more expensive in the short term, but cheaper in the long run.

The Federal Reserve closely watches the yield curve to decide whether to raise or lower interest rates. When the curve inverts, the Fed may cut rates to avoid a downturn.

https://www.ustreasuryyieldcurve.com/b/CinqQA

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