You may have heard that the wealthy “never sell” — they borrow against their assets instead. That idea has a name, “buy, borrow, die,” and it’s often discussed alongside tools like pledged asset lines and box spreads. Here is an honest look at how it works and, just as importantly, how it can go wrong.
What is the “buy, borrow, die” strategy?
It’s a shorthand for a three-part approach used by some high-net-worth families. Buy: accumulate appreciating assets — a diversified investment portfolio, real estate, or a practice. Borrow: rather than selling assets (which triggers capital gains tax), borrow against them to fund spending or opportunities. Die: under current U.S. tax law, many assets receive a “step-up” in cost basis at death, which can reduce or eliminate the unrealized capital gains — and the loans are repaid from the estate.
Why would anyone borrow instead of just selling?
Selling an appreciated asset realizes a capital gain and a tax bill. Borrowing against the asset does not — a loan isn’t taxable income. So the appeal is accessing cash from your wealth without triggering that tax today, while the underlying assets (ideally) keep compounding. The “die” part is what makes it more than just a deferral: the step-up in basis can wipe out the embedded gain for heirs.
What is a pledged asset line (PAL)?
A pledged asset line is a securities-backed line of credit. You pledge your taxable investment portfolio as collateral and borrow against a portion of its value, usually at a variable interest rate. It’s similar to a margin loan but is typically meant for spending needs (not buying more securities) and often has its own terms. You keep your investments; you pay interest on what you draw.
What is a box spread?
A box spread is an options strategy — typically built with European-style index options like SPX — that synthetically creates a fixed-rate loan (or deposit) for a set term. Sophisticated investors sometimes use box spreads to borrow at rates that can be competitive with, or lower than, margin rates. In exchange, you take on the complexity and execution risk of an options position, and you must manage the term and rollovers.
| Pledged asset line (PAL) | Box spread | |
|---|---|---|
| What it is | Securities-backed line of credit | Synthetic loan built from index options |
| Rate | Usually variable | Effectively fixed for the term |
| Complexity | Lower | High — requires options expertise |
| Main risks | Margin call / forced sale, rising rates | Execution/complexity, term/rollover, rising rates |
| Who uses it | Broad HNW use | Experienced, hands-on investors |
What are the risks of “buy, borrow, die”?
This is the part the internet often skips. Borrowing against your portfolio is leverage, and leverage magnifies bad outcomes as well as good ones.
- Margin calls and forced liquidation. If your collateral falls in value, the lender can require you to add cash or sell assets — potentially at the worst possible time, and potentially triggering the very taxes you were avoiding.
- Interest-rate risk. Variable borrowing costs can rise. If your loan rate climbs above your portfolio’s return, the math turns against you quickly.
- Market risk, amplified. A down market plus a loan is far more dangerous than a down market alone.
- Tax-law risk. The strategy leans on the step-up in basis. Tax law can change, and future rules may treat this differently.
- Complexity and cost (box spreads). Options are unforgiving of mistakes; poor execution or a misunderstood position can be expensive.
- Behavioral risk. Easy access to borrowed money can quietly grow debt faster than wealth.
Is this a good idea for dentists?
For most dentists, the bigger and more reliable wins come first: fully funding tax-advantaged retirement plans, proactive tax planning, and diversifying wealth beyond the practice. A leveraged strategy layered on top of a practice — which is itself often financed with debt — can concentrate risk rather than reduce it. Where a securities-backed line has a place, it is usually for short-term liquidity within a conservative, well-diversified plan, not as a lifestyle-funding engine.
How would you evaluate it responsibly?
- Confirm the fundamentals are handled first: reserves, diversification, retirement plans, and tax planning.
- Model a serious market decline and a rate increase at the same time — can you withstand both without a forced sale?
- Understand the exact terms, collateral requirements, and what triggers a margin call.
- Coordinate with your CPA and estate attorney on the tax and legal implications before acting.
- Keep any borrowing conservative relative to your assets and your other debt.
Frequently asked questions
Not necessarily, and not for everyone. It can defer capital gains while you’re alive, and under current law the step-up in basis may reduce gains for heirs. But it relies on tax law that can change, other taxes (like estate tax) may apply, and a forced sale can trigger the gains anyway. It is not a guaranteed way to avoid taxes.
They’re similar — both borrow against your securities — but a PAL is typically intended for general spending rather than buying more securities, and it has its own terms. Both carry the risk of a margin call and forced liquidation if your collateral falls.
Box spreads are a sophisticated options strategy. Used correctly by experienced investors they can provide fixed-rate financing, but they carry real complexity, execution, and term risk. They are not appropriate for most investors.
That depends entirely on your full financial picture and risk tolerance, and it’s a decision to make with your advisor, CPA, and attorney — not based on a blog. For most people, funding retirement plans, planning taxes, and diversifying come first.
Founder & Financial Planner · Investment Adviser Representative · Series 63 & 65
Ian McGinnis is the founder of Dental Wealth Partners and a fee-only financial planner dedicated to dentists. As an investment adviser representative (Series 63 and 65), he built the firm to give dentists coordinated, fiduciary advice across their practice, taxes, investments, retirement plans, and long-term goals — the whole picture in one strategy. A graduate of Belhaven University, Ian previously worked at Davis Private Wealth, MML Investors Services, and Northwestern Mutual, and is based in the Jackson, Mississippi area. He is the author of The Wealthy Dentist and hosts the Smiles & Cents podcast.
Keep reading
- Why your dental practice shouldn’t be your whole retirement planConcentration risk is the quiet danger for successful dentists. Here’s how to think about building wealth beyond the practice.
- Tax planning strategies for dental practice ownersProactive, year-round tax strategies for dental practice owners — entity choice, retirement plans, income timing, and coordinating with your CPA.
- Selling your dental practice: process, timing, and taxesWhat to expect when selling a dental practice — how to prepare, evaluate buyers and deal structures, and plan for the tax impact.