13. Pledging: Spend Without Selling

13. Pledging: Spend Without Selling

Your financial IQ is the ceiling of your wealth.

The Capitalist’s First Lesson: Learn to Borrow

Before discussing pledging, I have to talk about the first lesson a capitalist learns — borrowing. If you are a young person just out of college, mature financial markets like Taiwan and Singapore offer an excellent tool: personal credit loans (信贷). The moment you have a salaried income, take your first paycheck and walk into a bank for one. Low interest rate, long term (7–10 years), no collateral needed. The money lands in your account in one shot — put it straight into an index fund. Many will say: “Why borrow? I’ll use my monthly savings to dollar-cost-average. Isn’t that the same?” — Actually, very different.

Take a simple calculation: borrow NT$1 million, 2% rate, 10-year credit loan, all into the index fund. At long-term 10% annualized, 5 to 7 years doubles that to NT$2 million. Your NT$1 million has been compounding on “full principal” from day one — time is its friend. Conversely, if you don’t borrow and dollar-cost-average from monthly savings, the last installment in year 7 has just gone in, barely compounding; the early installments, even with 7 full years of compounding, are tiny in nominal amount. After 7 years your saved-up total is probably nowhere near NT$2 million. Note the premise of this comparison: you borrowed long-term low-interest credit, and invested in a broad-based index fund, never to be sold. If you borrow money and then trade individual stocks, or buy leveraged ETFs, or panic-sell on the first wobble — that’s not what I’m describing. This path is built on three preconditions: low-interest long-term borrowing + broad-based index + never sell. All three required. A capitalist understands from day one to use other people’s money to let his own assets grow first; a laborer only understands “wait until I have enough saved, then invest.” Two mentalities, ten years apart, and the wealth gap begins to diverge exponentially.

Use Pledging Instead of Selling

Earlier chapters hammered home one creed: never sell. Once you buy the NASDAQ-100 index fund, no matter how the market moves, never sell. This is the cornerstone of all wealth growth. But the moment you hear this, a very practical question pops up — if I never sell, how do I spend money? After retirement, with no salary, do I just drink the northwest wind? The answer is two words: pledging. Stock pledging is mechanically very simple. You put your stock holdings up as collateral and borrow cash from a bank or broker. The loan carries interest, but the rate is extremely low. In Taiwan today, pledging Yuanta Taiwan 50 (0050) or Fubon NASDAQ (00662) yields a rate of about 2.3% to 2.35%. In the U.S., pledging through a major brokerage’s Securities- Based Lending (SBL) program is similarly competitive, far below credit-card or personal- loan rates. You get cash for living, traveling, buying a car, caring for family — and not a single share of your stock has been sold. They sit quietly in your account, still participating in the market’s rise, still compounding wealth for you. This is the essential difference between pledging and selling. Selling permanently relinquishes the future growth of an asset. You sell $1 million of stock for $1 million cash today; spend it and it’s gone. But that $1 million of stock, unsold, may become $3 million in ten years, tens of millions in thirty. Pledging is different — you temporarily borrowed some liquidity; full asset ownership is preserved; growth was never interrupted. Metaphor: selling is killing the goose that lays golden eggs to make one meal; pledging is letting the goose keep laying while you borrow a side dish from a neighbor. Let me tell a real case. A student wrote me an email, excited to share: he had pledged 00662 at 2.35% interest, borrowed money, and bought a Tesla. On top of that, he sold his

old car and put that money straight back into 00662. He wrote in his email a line that stuck with me: “Teacher, I didn’t spend a single cent of my own money. All my assets are still here, and growing. My salary keeps going into the market, and I have a Tesla to drive on top of it all.” Think carefully about how elegant this is. He sold no stock, so growth is fully preserved. The interest is only 2.35%, while his investment annualizes above 10% long-term — almost 8 percentage points of spread, the bank effectively earning for him. He converted his depreciating asset (the old car) into an appreciating one (more index fund). Net result: he owns a new car, his assets have not shrunk and are actually larger, his salary keeps going into the market, his wealth snowball keeps rolling. And his friends without this knowledge? Some take out loans to buy cars, with monthly payments crushing them; some scrimp for years, finally afford a car, drain their savings, account empty. Same starting point, different financial IQs, destinies fork from here. Your financial IQ is the ceiling of your wealth. This is not idle talk. The same money: someone with low financial IQ spends it directly, gone; someone with medium IQ parks it in a CD for a thin interest; someone with high IQ invests it for ongoing growth, and when he needs to spend uses pledging — principal and growth both intact. Three approaches, three destinies; the gap widens over time into a gulf. Now let me explain something many find unbelievable: why doesn’t the bank want you to repay? This sounds contradictory, but if you understand the bank’s business model, you’ll see it’s perfectly logical. What is the bank’s “inventory”? Money. What is the bank most afraid of? Money sitting in its vault, unlent. From the bank’s perspective, you coming to borrow is its happiest moment — you took its inventory, it earns interest. You borrow on time, repay on time, your credit gets better; the bank wants to lend you more. You borrow NT$600,000 first and pay interest on time; after a while the bank proactively asks you, “Want to borrow another million?” It is not doing charity. It is doing business — the more you borrow, the more interest it earns, the faster its inventory turns. So the bank naturally wants high- quality customers to borrow more, repay less, and hold debt long-term. Then why must mortgages be repaid? Why do mortgages have 30-year terms with full payoff required? Because of the collateral’s nature. A house is a depreciating asset — it ages, pipes corrode, structures wear, the roof leaks. After 30 years, its residual value may be very little. If the bank let you borrow indefinitely and you defaulted in year 40, leaving them with a decrepit house, the bank loses big — that house is worth nothing. In extreme cases, a house can be destroyed overnight by disaster — earthquake, fire, hurricane — wiping out the collateral. So the bank must set a repayment term to recover money while the house is still worth something. But stocks are completely different. A NASDAQ-100 index fund doesn’t “age,” doesn’t depreciate, won’t burn, won’t be earthquake-leveled. It represents the collective growth of the world’s top 100 technology companies. As long as humanity progresses and

technology advances, its value keeps growing. So when stock is the collateral, the bank doesn’t need you to repay principal — your collateral does not depreciate, it appreciates year over year. To the bank, this is the ideal customer: collateral grows more valuable, interest income is steady, risk is lower than a mortgage. Once you grasp this layer, you see the essence of pledging: this is not a trick, it is a win-win financial arrangement grounded in assets that keep growing. You get cash flow without selling assets; the bank gets steady interest without worrying about collateral depreciation. This is why “never sell and still spend” is not a slogan but a practical lifestyle. Let me run a spread analysis with concrete numbers. Suppose your portfolio is NT$10 million, long-term annualized 10%. Pledge 20% — borrow NT$2 million — at 2.35%. One year later, your interest cost is NT$47,000. But your portfolio grew 10% in that year, NT$1 million. Net: NT$953,000 earned — plus you have NT$2 million cash extra to use. That is the power of pledging: your cost is minuscule, while the preserved growth space is huge. What if you had sold NT$2 million instead? You got NT$2 million cash, but lost the next several decades of compounding on that NT$2 million. In ten years that NT$2 million might have been NT$5 million, NT$6 million. You traded the future hundreds-of-millions for today’s NT$2 million — that is the cost of selling.

Apple Card Cashback Reinvestment: The Loop at Its Extreme

Finally, let me push the “borrow-invest-cashback-reinvest” loop to its extreme — this is the life I live every day. My current lifestyle goes like this: every expense — taxes, living costs, travel, meals, transportation — all on credit card. When the statement arrives at month-end, I borrow money to pay the card bill, not touching a cent of my assets. Sounds counterintuitive, but look closely:

• Every charge on the Apple Card gets me 1–3% cashback.
• The cashback is a few hundred USD a month; I put all of it into the index fund — that’s “extra” investment principal that arrived out of thin air.
• The month-end card bill is paid from low-interest credit loans or pledging arranged in advance; not a single share of my index fund is sold.
• Stretch the timeline to decades, and the principal plus compounding of that cashback far exceeds the cumulative interest I paid to “cover the card bills.” Math: suppose I spend $100, get $2 cashback. I borrow ~$100 to pay the card bill; over decades, the accumulated interest might leave me “on paper” owing $1,500. But that $2 of cashback, reinvested for 40 years at 10% annualized, may grow to $2,000–$3,000. The $100 I spent has a net cost approaching zero — even negative. I am, effectively, living for free. The key here is not Apple Card (any high-cashback card works) — it is the loop: spend → cashback → cashback reinvested → growth → growth covers loan interest → never sell the

original assets. This is the ultimate financial lifestyle of a capitalist. It needs three preconditions: good enough credit, large enough asset base, strong enough discipline. Miss any one and you cannot play this game. The reason this section is here is not for you to do this today — it is to make you see: once your assets cross a certain threshold, “spending” and “earning” are the same thing. ───────────────────────────────────────

Key Points

One, pledging is a mechanism for borrowing from a bank against your stock as collateral. The rate is extremely low (about 2.3–2.35% in Taiwan); the borrower gets cash flow without selling a single share. Asset ownership and growth rights are fully preserved — completely different from selling, which permanently forfeits future growth. Two, the bank’s inventory is money; idle money is its problem. High-quality customers who borrow much, repay little, and hold long-term debt are the ideal state for the bank. Stock does not depreciate or fall victim to disaster, making it safer collateral than real estate — so banks are happy to keep extending pledge loans long-term. Three, the spread between pledge interest rate and asset growth rate is huge. Borrowing liquidity at 2.35% while preserving 10%+ annualized growth produces astonishing wealth accumulation over time. The cost of selling is not today’s money you lose; it is the decades of future compounding on that money.

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