Money Rehab with Nicole Lapin
How Margin Borrowing Can Supercharge or Destroy Your Investments
01 Apr 2025
With margin borrowing, you can give your investments a boost— but if you're not careful, you could also lose more than you gain. Nicole explains the concept, and whether it's a money move you should make.
Full Episode
So I have written, count them, five books now. But each time I'm in the writing process, I stay at an Airbnb. I love to stay at an Airbnb. When I was actually first launching this show, I was at an Airbnb in Arizona. It was so peaceful. It was stunning. I could be productive and comfortable. The Airbnb was also surrounded by a ton of javelinas.
If you know Arizona, you know they're like wild pig creatures. But honestly, I love them too. Being away for work, for fun, or both is a perfect opportunity to host your space on Airbnb. And if you think that hosting is overwhelming, I have a solve for you. With Airbnb's co-host network, it's easier than ever before to host. It's also a great way to earn some extra cash, which I know we all love.
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Find a co-host at airbnb.com slash host. I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. Well, if you've been on your money rehab game for a while now, you know that making smart investments can grow your money year over year. And you don't need a lot of money to start investing.
But because whatever you invest compounds, the more money you invest, the better. That's where margin borrowing comes in. Margin borrowing is a money move that can give your brokerage account a financial boost, but it's not as picture perfect as it seems. So what exactly is margin borrowing to begin with?
You can think of it as your brokerages way of saying, hey, you've got some amazing investment ideas. I can lend you some cash to make those happen. At a top level, you're borrowing money to buy stocks and putting the stocks that you already own up as collateral.
So if you've got your eye on 10K worth of stock, but you only have five grand on hand, margin lets you borrow the rest to make the full purchase. It's like getting a bigger shovel to scoop up more of the market. It sounds a little weird to put your investments up as collateral, but it's no different than using your house as collateral for a loan or paying a security deposit on a hotel reservation.
You're offering an asset as a guarantee to a lender in the context of margin borrowing. It means that you're borrowing money from the brokerage and using your existing stocks or other eligible securities, depending on what you're investing in as collateral. So your brokerage kind of becomes like the guy behind the counter at the pawn shop.
But instead of your jewelry, you're using your stock holdings to secure a loan. You tell the broker, hold on to these shares for me. I promise to repay you when I borrow. But if I can't, these shares are all yours to sell to recover your money. You're essentially agreeing to let the broker use your current investments as a safety net.
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