Should I sell or borrow?

Considering selling your stocks for a purchase? See if borrowing from your portfolio line of credit is better.

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How much do you need?
What does your stock portfolio look like?
Average rate of return
Interest rate
Capital gains tax rate

After 30 years, you could have more by borrowing from a portfolio line of credit on Frec instead of selling your stocks.

Average rate of return: 0%
  • Sell
  • End of year portfolio$NaN
  • Sale to cover expense ($0)
  • Interest($0)
  • Taxes paid($0)
  • Borrow
  • End of year portfolio$NaN
  • Loan ($0)
  • Interest this year0% ($0)
  • Total taxes owed($0)
Results are for illustrative purposes and are not a guarantee of performance. Rates will vary over time, particularly for long-term investments. You are able to enter your own rate of return in the calculator, please note the higher the rate of return, the higher degree of risk.

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Borrow against a portfolio line of credit at one of the lowest rates with Frec.


  • How does Sell or Borrow work?
  • How is portfolio performance simulated?
  • How does "Regenerate" work?
  • Why are historic average rates of return stated as a range?
  • How do different duration choices affect the simulation?
  • How does the custom rate of return work?
  • How do I input my own stocks into this simulator?
  • How are interest rates simulated?
  • How are taxes calculated?
  • What happens when there is a margin call?
  • How does Sell or Borrow work?

    Frec's Sell or Borrow tool enables users to explore potential investment portfolio performance under various scenarios. By inputting information such as held stocks, projected interest rates, and additional factors, the tool creates simulations of potential outcomes over preset durations of 15, 20, or 30 years.

    For each simulation, the tool generates two distinct hypothetical scenarios: one where you sell a portion of your stocks to finance a specific expense, and another where you borrow funds to cover the same expense. These scenarios are illustrated as two separate lines on a time series chart, labeled Sell and Borrow.

    The lines consist of data points representing individual months, which can be hovered over to display relevant information for that year, including portfolio value, loan balance, and other vital details. You can create a new simulation using the same inputs by clicking the "Regenerate" button.

    Please note that this tool serves as a demonstration and should not be considered a recommendation to sell or borrow against your stocks. As the simulator relies on historical data, keep in mind that past performance does not ensure future results.

  • How is portfolio performance simulated?

    To simulate future portfolio values, the initial step involves determining an average portfolio return1 and a simulation duration. This can be achieved in one of two ways: by sampling from historical data or inputting custom return and duration values.

    When using historical data for simulating returns, relying on the past performance of a single stock may not yield meaningful results because it is only representative of a single data point. In order to produce a more robust approximation, the simulation considers the historical performance of the broader market (i.e. the S&P 500 index). The index offers a long history and encompasses hundreds of stocks, providing a larger data set for more accurate results.

    Based on the selected duration, each simulation starts by sampling a historical period of that length, beginning on or after 1960 (e.g. the 30-year period from January 1971 to January 2001).

    Next, the dividend-adjusted historical returns of the S&P 500 index (SPX)2 for that period is calculated (12.2% in our example). Then, the final return for the specific portfolio is determined by scaling the return by a specific portfolio multiplier, which we discuss below. Suppose a specific portfolio has a multiplier of 2.0. The return used for this particular simulation will then be set to 24.4% (12.2% ✕ 2.0). If the "Market: S&P 500 index ETF" portfolio preset is selected, then the multiplier will be 1.0 and the return will be set to 12.2% (12.2% ✕ 1.0).

    With a return and duration specified, it would be possible to plot a smooth exponential curve over a 30 year period. However, this wouldn’t capture a portfolio’s volatility and the potential risks associated with volatility. To simulate a more realistic outcome, the simulator relies on the standard deviation of the historical monthly changes in the SPX index3. The standard deviation is used to fit and sample from a normal distribution for each simulated month. To ensure that these sampled monthly changes multiply up to the desired return (24.4% in our example), a single constant is computed and added to each (leaving the standard deviation unchanged). Finally, given today’s current portfolio value, these monthly changes can be applied concurrently to generate the full simulated time series for the next 30 years. Note that the simulated time series is randomly generated and does not correspond to any past sequence of monthly changes.

    Each time the options change or the regenerate button is clicked this whole process is repeated, starting with a newly sampled 30 year historical period, e.g. March 1974 - March 2004 having an 11.4% return. As such, results may vary with each use and over time.

    How is the portfolio multiplier calculated?The multiplier used for a portfolio is the value-weighted average of each stock in the portfolio's beta measure with respect to the SPX index. The beta measure is a commonly used measure of a stock's volatility in relation to the broader market (i.e. the SPX index). The formula used to calculate beta is the covariance of the stock's returns with the returns of the market, divided by the variance of the market's returns.

    A beta of 1 indicates that the stock's price moves in line with the market, while a beta greater than 1 indicates that the stock is more volatile than the market, and a beta less than 1 indicates that the stock is less volatile than the market. To compute the beta for an entire portfolio the individual stock betas are averaged with a weighting proportional to the current market value of the stock.

    1 Return here and throughout this FAQ is defined as the compounded annual growth rate (CAGR) for the specified duration. It is also referred to as the average return in the tool. CAGR is the average rate at which an investment moves from one value to another over a period of time. The CAGR for a portfolio doesn't consider account additions or withdrawals, actual returns will differ from those experienced in the past.
    2 The historical data used for the S&P 500 index is provided by Robert Shiller here:
    3 Here data for the SPY ETF since 1990 is used, as the monthly data is more readily available.

  • How does "Regenerate" work?

    By clicking "Regenerate", you can create a new simulation based on the same inputs, allowing you to explore a variety of potential outcomes with the given parameters. The simulation process is detailed in the “How is portfolio performance simulated?” section above. Here, we provide a concise explanation of the process.

    If the historical return option is selected then the first step in generating a new simulation is to sample a new historical return for the given duration, e.g. 1974-2004 having a 9.4% return. This returnwill then be multiplied by the portfolio multiplier to produce the final return used in the simulation. If, instead, a custom return is specified then that value will be used directly.

    Subsequently, the simulator samples a new set of random monthly changes in portfolio value, ensuring that these changes collectively result in the desired final return for the simulation. After generating the portfolio values, the software iteratively calculates interest charges and processes any margin calls that may arise for each month (See "What happens when there is a margin call?" section).

    A good way to get a sense of how the process works is to choose a fixed custom return and click "Regenerate" a number of times to observe the range of possible future outcomes.

  • Why are historic average rates of return stated as a range?

    To simulate using the historic average rates of return, you are asked to choose between a 15, 20, or a 30 year duration for the simulation. Each of those periods have a different range of returns based on the historical dividend-adjusted returns of the S&P 500 index. The lower end of the range corresponds to the worst performing period from 1960 to 2022, and the maximum end of the range corresponds to the best performing period from 1960 to 2022 – scaled by the portfolio multiplier. See "How is portfolio performance simulated?"

    Let's say the default option "Market: S&P 500 index ETF" is selected, which has a portfolio multiplier of 1.0. In this case, the 30 year period has a range of returns between 8.9% and 13.4%. Here, 8.9% corresponds to the period between August 1987 and August 2017, which is the worst-performing 30 year period to date since 1960. On the other hand, 13.4% corresponds to the period between June 1970 and June 2000, which is the best-performing 30 year period to date since 1960.

  • How do different duration choices affect the simulation?

    The simulation tool allows users to select 15, 20, or 30-year durations when conducting simulations. When using the custom return setting, the duration only affects the time frame over which the return is applied, without altering the return value itself. However, when sampling returns from historical data, the chosen duration plays a more substantial role.

    The long term historical data indicates that diversified baskets of stocks, like the S&P 500 index, tend to exhibit less variable returns over longer periods of time. This observation is widely recognized among investors and plays a key role in making borrowing decisions against stocks4. When selecting a 15-year duration, for example, the simulation tool will randomly sample a 15-year period since 1960, such as February 1983 to February 1998, and calculate the S&P 500 index's return over that period. Due to the data's aforementioned properties, the range of potential returns for simulated portfolio performance is much wider for shorter durations than for longer ones.

    As a result, the simulation tool can help one understand the significance of considering longer periods when assessing investment opportunities, as this can result in more predictable and stable outcomes.

    4; “A Random Walk Down Wall Street” by Burton G. Malkiel

  • How does the custom rate of return work?

    Selecting a custom rate of return will ensure that the generated time series will have a compounded annual growth rate (CAGR) equal to the given value. Note that throughout this doc we refer to the CAGR as simply the return. Importantly, this does not mean that the portfolio value in each year will exhibit the same return, only that when the performance over the entire duration is considered the specifiedreturn is given.

    That is, the monthly changes in the portfolio value each month are randomized and reflect the expected volatility for the given portfolio. You may refer to the "How is portfolio performance simulated?" section for more details.

  • How do I input my own stocks into this simulator?

    You can input your own stocks by editing the "What does your stock portfolio look like?" input and clicking on "Edit stocks manually". This will open up a window where you can add and remove stocks. To add a stock, click "Add stock" and enter the stock symbol, current value, and total amount paid. The current value is how much your position is worth today based on current market prices, and the total amount paid is how much you paid to purchase or receive your shares. If you don't know the exact amount paid, just enter an estimate. This input is used to calculate taxes (See "How are taxes calculated?" section).

  • How are interest rates simulated?

    Our interest rate is the Effective Federal Funds Rate + 1%. The FOMC (Federal Open Market Committee) releases interest rate projections periodically. We take their latest published projections, add 1%, and apply them to the simulation per year. For example, if the FOMC's latest projection for 2024 is 4%, we simulate our rate to be 5%. FOMC projections are typically limited to 4 years out (e.g. 2026+), so we take the last projection and extend it to the rest of the simulation. You can enter a custom interest rate by editing the “Interest rate” input, clicking “Custom interest rate”, and entering an amount.

    How are interest rates calculated?On Frec, we automatically add interest charges to your loan. On the simulator, this is represented as "Loan" in the yearly data, which is the principal of your loan plus all of the interest accrued year to date. As a separate line item, we show the “Interest this year” which is the interest calculated against your loan amount using the current year's interest rate.

    As an example, let's say FOMC interest rate projections for 2024 is 4% (Frec rate: 5%) and for 2025 is 3% (Frec rate: 4%). For a loan of $100,000, interest charges for 2024 would be $5,000 ($100,000 X .05). In 2025, your "Loan" amount would be $105,000 ($100,000 + $5,000) and the interest charges for 2025 would be $4,200 ($105,000 X .04).

  • How are taxes calculated?

    When you sell stocks at a profit, you are subject to capital gains taxes on the profit for the tax year the sale was made. Capital gains taxes in this simulator are calculated using two inputs: cost basis of the stocks selected and the capital gains tax rate selected. We use each stock's cost basis, which is the amount paid to receive or purchase the stock, to determine the overall gain or loss of the portfolio. If there's an overall gain, we multiply the capital gains tax rate by the overall portfolio gain to determine the total capital gains taxes owed. In the "Sell" scenario, the taxes are covered by selling the necessary amount of the portfolio during the first year of the simulation to pay the specified expense as well as any owed taxes.

    How is a stock's cost basis determined?For the default stock portfolios (Market, Tech stocks, Value stocks), a cost basis of 75% of the current market price is used, representing a 33% appreciation. For custom stock portfolios, the value provided in the "Total amount paid" column is used.

    How do I know what my capital gains tax rate is?Your capital gains tax rate depends on various factors such as your income, state, and tax filing status. Read more about capital gains taxes here. Disclaimer: Frec does not provide tax advice and you should always consult with a licensed tax advisor regarding your tax situation.

  • What happens when there is a margin call?

    What are some of the risks of using a portfolio line of credit?Investments are subject to market volatility and as such the underlying stock used as collateral for your portfolio line of credit may fluctuate and result in you owing more than was initially borrowed. Additionally, the interest rate on your Frec portfolio line of credit is not fixed and fluctuates with the Effective Federal Funds Rate, which may have adverse consequences on your portfolio when the rates rise. Utilizing a portfolio line of credit to invest more may magnify potential portfolio losses.

    What is a margin call?A margin call is when you have to pay a portion of your loan, and occurs when your loan amount exceeds the amount you're allowed to borrow. This can happen if a portfolio's value drops suddenly due to a market downturn, or if the stock you're borrowing against decreases its loan-to-value.

    How are margin calls resolved in the simulation?Margin calls are indicated as yellow diamonds in the simulation. When a margin call occurs, it means that the loan in that year exceeded the amount the portfolio was capable of borrowing, thus requiring a payment on the loan's principal. The simulation will sell a portion of the portfolio to resolve the margin call and bring the loan amount back down to a level that the portfolio is allowed to borrow. Stocks are sold in such a way that sells the least value possible.

IMPORTANT: The projections or other information generated by Frec’s Sell or Borrow tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results.