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> Liquidity is a useful concept to think about when evaluating your risk levels. Having 500k in stocks is different than 500k in your primary residence. Same net worth but if you need to tap into 500k of stock, you can do that tomorrow. Liquidating your primary residence takes a few weeks (or months) and you’re then homeless.

This is well said and the main reason why when calculating if someone is an accredited investor they always exclude the value/equity of a person's primary residence.

Someone who is renting but has a large pile of cash is in a better position to repay than someone who has their equity in their home as selling equites vs selling their primary home have far different stresses on the person, all other things being equal.

Liquidity can be broken down further into volume profile and net proceeds.

1) There is a good likelihood that a house and a stock portfolio can both be sold tomorrow, no problem. But you may have to offload the house at “fire sale” prices , vastly lower than the price it would bear if you had it on offer for 30+ days.

2) T-bills and stocks can both be sold tomorrow, but if your stocks have cap gains then the net proceeds after tax are going to be much lower from the sale of stocks than the t-bills.

These are some of the ways “paper gains” and “market price” fundamentally lie to you (irrespective of bubbles etc), that are seldom broken down in too much depth in personal financial discussions.

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Another dimension that is missing is financial freedom. The author says:

> These wealth levels have existed throughout human history, even though the unit of currency changes.

↑-1 Wealth: Destitute (less than $3) At the bottom-most level, a person can’t even scrape together a few bucks for some food. Societal services aren’t accessible unless they are completely free. Finding a toilet and shower may be difficult. They have no possessions; their shoes and coat are probably decrepit and dirty.

Hard disagree here. An indentured servant in the 17th century, with a negative net worth, might have a very decent standard of living. Nice shoes, coat, bountiful table, etc. But they are not free to leave the land and move somewhere else. They are not free to pick up a different occupation.

It sounds like you may simply be misinterpreting or assigning different values to wealth levels than the author?

There were unquestionably many people in the 17th century who fit the description there. Just because you can come up with an example of someone who might plausibly fit the basic "has negative personal net worth" criterion who doesn't fit the rest of it doesn't refute that.

>> Having 500k in stocks is different than 500k in your primary residence. Same net worth but if you need to tap into 500k of stock, you can do that tomorrow. Liquidating your primary residence takes a few weeks (or months) and you’re then homeless.

I have a HELOC. I've never used it. Hopefully I won't need to, but it was free to apply for and a good thing to have in case you do need it. I can tap into about 50% of my house's value any time I want instantly by writing a check or transferring money to one of my other accounts.

Rather obviously someone can simply take a heloc against their home, and the payment from that will still be less than comparable rent.

The same is true of stocks - loans can be taken against them, and in the form of certain options leverage can hit 100%.

> The same is true of stocks - loans can be taken against them

this is only available to the richest of the richest.

Most brokerages will offer you a margin loan if you have say $100k of stocks held through them. Not pocket change, but easily available to magnitudes 4-5 on this scale.

The interest rates often make those unattractive. You also expose yourself to the risk of a margin call with its many implications. It isn’t something the average person should be doing casually.

IBKR will loan you vs your stocks at a cheaper rate than pretty much any place will for a heloc on your house. Not like a lot cheaper, but maybe 0.5%-1% cheaper if you have <<$1M, and a little better at higher amounts.

Most other brokers, even Schwab and Fidelity, will not.

Agree it's probably not a good idea for most people. (I might argue the same for a heloc, depending on what for, what emergency savings, what level of job security, etc)

I didn't say it was a good idea. I said it was available to people other than the "richest of the rich".

> The interest rates often make those unattractive. You also expose yourself to the risk of a margin call with its many implications

FWIW my brokerage gives me a margin loan at 4.9% up to 30% of the portfolio. The interest is literally lower than the mortgages I see advertised these days.

Mainstream brokerages will do this starting at $2,000. You just apply for margin and take out the cash. Of course if the value of your stocks drops below $2,000, they will start selling stocks out from underneath you and triggering capital gains.

The real use of margin is that it enables the holder of the stocks to use them with the broker to take on cash obligations in the form of other stock options, or to take on obligations which require holding certain shares which create cash, such as a short call option.

I am not even close to the richest of the richest but I have done this before when I needed to use the cash but didn't want to trigger a capital gain from actually selling the stock.

It is a slightly more complex trade using both available margin and a stock option which effectively results in the "interest" showing up as a capital loss, and helped keep the risk minimal of actually being forced to sell. When the transaction was all done, then I sold enough of the stock to have a capital gain to offset the capital loss.

The purpose? Moving very quickly to buy a property which required 10% of the purchase price in cash on a specific day (buying property at auction). The auction house offered to "wait to deposit the cheque" until a Tuesday for an auction on a Saturday... which coincidentally is how many days it takes a cash-out transaction from a brokerage account to clear, after making the trades at market-open on a Monday morning. We showed the auction house the brokerage account and the trades (which they were not unfamiliar with) and they were quite agreeable to sit on the cheque until the funds cleared.

All entirely legal, and all why savvy 4's, most 5's, and every single 6 are able to use their wealth to acquire property whereas the 3's and below are perpetually mired in poverty, despite working very, very hard.

Uhhh if you have $500k in house equity you can setup a HELOC line of credit in a week. If you want to fully cash out the equity you can do that too.

Liquidating 500k in stocks also takes more than a day to get in the bank.

I was unable to use a HELOC to pay for renovation costs. The banks wanted basically the same assurances as you'd need with a conforming mortgage. I had investment assets several times the loan amount, and a fully paid off house. I ended up having to go private money at a higher cost in order to not liquidate more investments than I wanted to.