US investors drawing down retirement accounts through lines of credit in greater numbers.
An interesting story from south of the border: Banks are offering clients lines of credit secured by their retirement brokerage account--and clients are tapping this money to support current spending.
A recent Bloomberg story discusses the issue, quotes a financial adviser, Jason Katz, who has 21 clients who took out such loans the first time last year. This is four times the rate of previous years. Katz blames the desperation on ultra-low rate investment rates that has left conservatively-invested bond portfolios unable to deliver expected cash flows.
"It's the fact rates are historically low and remained low; it's the fact that equity prices have moved up as much as they have and bond prices are as low as they are," Mr. Katz said.
According to Bloomberg, Mr. Katz works in New York for UBS's U.S. wealth management unit, which said securities-based lending rose 28% from 2011 through 2013 across the firm.
It was not long ago Americans were using lines of credit attached to mortgages as an ATM, taking out equity in homes to use as cash for spending. When the housing market tanked in the 2000s that avenue for maintaining consumption gave way. Now so-called non-purpose securities-backed loans—in which the client pledges all or part of a portfolio of stocks, bonds, mutual funds as collateral—is the new way to maintain spending in a tough economy. Whether this represents a good way for high-net worth clients to take some money off the table and buy a new boat, or whether this is a new and dangerous high in short-term thinking is yet to be seen.
A recent Bloomberg story discusses the issue, quotes a financial adviser, Jason Katz, who has 21 clients who took out such loans the first time last year. This is four times the rate of previous years. Katz blames the desperation on ultra-low rate investment rates that has left conservatively-invested bond portfolios unable to deliver expected cash flows.
"It's the fact rates are historically low and remained low; it's the fact that equity prices have moved up as much as they have and bond prices are as low as they are," Mr. Katz said.
According to Bloomberg, Mr. Katz works in New York for UBS's U.S. wealth management unit, which said securities-based lending rose 28% from 2011 through 2013 across the firm.
It was not long ago Americans were using lines of credit attached to mortgages as an ATM, taking out equity in homes to use as cash for spending. When the housing market tanked in the 2000s that avenue for maintaining consumption gave way. Now so-called non-purpose securities-backed loans—in which the client pledges all or part of a portfolio of stocks, bonds, mutual funds as collateral—is the new way to maintain spending in a tough economy. Whether this represents a good way for high-net worth clients to take some money off the table and buy a new boat, or whether this is a new and dangerous high in short-term thinking is yet to be seen.
