A Low-End “Buy, Borrow, Die” Strategy
Today, I’d like to share a personal investment and consumption planning strategy. This strategy, inspired by a simplified version of the “Buy, Borrow, Die” model, is suitable for the average individual seeking to achieve the goal of “living and becoming wealthy.” The key is to invest in growth assets, leverage cash flow, and ultimately hold assets long-term to avoid taxes. If you’re interested in investing, read on; it might offer some insights.
Introduction: Debt Isn’t a Monster—Healthy Debt Can Help You Get Rich
Many people instinctively recoil at the word “debt,” believing that owing money is a bad thing and feeling insecure, as if debt is a shortcut to poverty. This is a common misconception. Debt itself is neither good nor bad; the key lies in whether it’s manageable and forms a virtuous cycle. Bad debt is used to buy consumer goods, such as luxury goods or high-interest credit card bills, which can lead to ever-increasing debt. Good debt is an investment tool that maximizes the returns of assets, such as borrowing money to buy real estate or stocks, putting your money to work for you and ultimately generating more income. This view isn’t groundless; it’s been articulated by many prominent investors. In his book Rich Dad Poor Dad, investment educator Robert Kiyosaki repeatedly emphasizes the principle that “good debt makes you rich, bad debt makes you poor.” He argues that the rich use debt leverage to acquire cash-flow-generating assets, while the poor become enslaved by debt. Similarly, in the “buy, borrow, and die” strategy, debt isn’t a burden but an accelerator—as long as the loan-to-value ratio is kept within a safe range (e.g., 40%) and the interest is covered by cash flow, it can fuel wealth growth. Next, we’ll break down the entire strategy based on this concept.
1. Overall Approach: Building a “Growth + Consumption” Dual Cycle
The “buy, borrow, and die” strategy first became popular among the wealthy, for example, by purchasing high-quality assets, borrowing to consume, and ultimately passing on the wealth to avoid capital gains tax. But for ordinary families, we can simplify it into a sustainable cycle.
First, “buy”: Select a core growth asset as the foundation. For example, the S&P 500, Nasdaq 100, or a combination of gold and US Treasuries have an average 10-year return of approximately 8% to 15%. Adjust the ratio based on your needs. Don’t worry about short-term fluctuations or historical pullbacks. Treat it as a fixed asset and hold it for the long term, and it will definitely appreciate.
Then, “Loan”: Most banks offer investment product collateralized loans. The interest rate is very low, perhaps around 1.5% to 4%. The loan ratio varies depending on the portfolio, ranging from 100% to 55%. The higher the risk, the lower the ratio. This can be considered to control the proportion of funds that are truly practical. For example, if your assets are the S&P 500, its historical maximum drawdown is around 50%, and the Nasdaq 100’s maximum drawdown is 80%. Then, you can control your funds to 35% to 40%, ensuring there is no risk of forced liquidation in the event of a black swan event. Borrowed funds are not spent directly, but invested in a portfolio of high-dividend assets or short-term trading strategies. These high-dividend assets are responsible for generating a stable cash flow to repay interest and consumption.
Finally, “Death”: The entire system does not sell principal, nor does it repay the loan; it uses cash flow solely to cover interest, living expenses, and reinvestment. Holding for the long term avoids taxes, and ultimately, the assets are passed down through insurance and other means.
This creates a dual cycle:
- Growth assets are responsible for long-term appreciation.
- High-dividend assets are responsible for generating cash flow, supporting consumption and reinvestment.
Simply put, it uses borrowing to maximize the efficiency of your capital, allowing your assets to “earn money” and support your family.
2. Allocation of High-Dividend Assets: Balancing Return and Risk
When investing borrowed money in high-dividend assets, risk diversification is necessary. Suppose we have two options:
- One is a stable high-dividend asset, such as JEPQ and QQQI, with a dividend yield of approximately 10% to 14% and low volatility.
- The other is a high-risk, high-return asset, such as BITO, CONY, and TSLY, with a dividend yield of up to 130%, but with significant uncertainty.
To maintain an overall dividend yield of 40%-50%, the recommended allocation ratio is:
70%-77% for stable assets.
23%-32% for high-risk assets.
This ensures stable cash flow while diversifying risk. If the market is good, cash flow will be even more abundant; if it is volatile, it won’t be completely wiped out.
3. Fund Use and Spending Rules: Snowballing Cash Flow
The key to this strategy is strict funding rules to ensure that every penny is used efficiently.
- Use of Dividend Income:
- First, pay loan interest (assuming 4%, but actual costs may be lower) and basic household expenses (e.g., around 7,000 yuan per month).
- Use the remaining balance to invest in core growth assets, increasing principal.
- Dynamic Expansion of Loan Limits:
- As growth assets appreciate, the collateralized loan limit will also increase.
- New loans will continue to be invested in high-dividend-yielding assets, further amplifying cash flow and creating a snowball effect. 3. Optimize your spending habits:
- Use a high-cashback credit card for daily expenses (with a cashback rate of approximately 4.2%, saving you several hundred yuan per month).
- This effectively reduces your actual expenses, freeing up more cash flow for reinvestment.
In short, your spending relies solely on dividends, leaving your principal untouched. Credit card cashback is a clever trick to further improve your capital utilization.
Calculating the effects over four and five years: From covering daily expenses to accelerating accumulation
Assuming an initial investment of 1 million yuan, let’s look at the simulated results (based on historical data, actual results depend on the market):
- End of Year 1: Net assets of approximately 1.21 million yuan (after deducting a 40% loan), with monthly dividend balances reaching approximately 15,000 yuan. Consumption is fully covered, and cashback further reduces the burden.
- End of Year 3: Net assets of approximately 2.18 million yuan, with monthly balances reaching 23,000 yuan, equivalent to twice your household expenses.
- End of Year 5: Net assets of approximately 3.01 million yuan, with monthly balances exceeding 32,000 yuan, far exceeding your daily expenses, and your wealth enters a period of accelerated growth.
As can be seen, the initial phase is characterized by steady progress, while the latter phase is characterized by exponential growth. The key lies in patience and discipline.
V. Risk Warning: Margin of Safety and Potential Challenges
This strategy has a high margin of safety (only 40% of the loan is used), but investing always carries risks, so be aware of the following:
Market Volatility Risk: The market value of growth assets may decline, impacting the growth rate of net assets. However, due to the low loan ratio, margin calls are unlikely.
Dividend Volatility Risk: The returns of high-dividend assets are not guaranteed; if they decline, cash flow will decrease.
Interest Rate Risk: Rising loan interest rates will increase interest expenses and squeeze cash flow.
Exchange Rate Risk: If the assets and consumption currencies are different, exchange rate fluctuations may affect purchasing power.
Overall, the risks are manageable, as consumption does not touch the principal, relying solely on dividends. Later, you can add medical and life insurance to further consolidate your position.
VI. Summary: Achieving “Live and Get Rich”
The essence of this low-end “buy, borrow, and die” model is:
- Use dividends to cover expenses → Live a worry-free life.
- Use remaining dividends to invest in growth assets → Continuous asset appreciation.
- Use loans to amplify dividends → Improve capital efficiency.
- Use credit card cashback → Reduce actual expenses.
Never sell net assets to save on taxes. Over several years, not only will your life be secure, but you’ll also accelerate wealth accumulation. This model is suitable for those with a certain amount of capital and risk tolerance.
Finally, if you are interested, we recommend consulting a professional advisor to adjust your investment based on your personal circumstances. Investing involves risk; enter the market with caution!