Most investors have a long-term goal but, with so many opportunities to choose from, it can be challenging to settle on just one. Whether you’re looking to invest through Nasdaq, the SIX Swiss Exchange, the Frankfurt Stock Exchange or other markets worldwide, Hectocorn has extensive experience helping ultra-high-net-worth individuals secure the finance to maximise their portfolios.
Stocks can be a valuable component in your investment portfolio. Owning stocks in fast-growing companies can help you maximise your investment income, protect your money from inflation and taxes or grow your savings. The most common reasons to invest in stock markets include the following:
High return on investment
Most people choose to invest in stocks primarily because of the potential return compared to alternatives like gold or treasury bonds. In most cases, stock market returns outpace the inflation rate, making them an excellent long-term investment option. Furthermore, economists often use the term liquidity when referring to stocks, which means investors can quickly turn shares into cash with low transaction costs.
To earn a passive income
Most companies pay dividends on a portion of their profits to investors. They may make quarterly dividend payments, although some companies choose to pay monthly. But dividend payments can be an excellent supplement to your passive or retirement income.
Investors use stock lending as it helps them free up liquidity from their stock. This money can be used for anything from buying a property or supercar to buying more stocks. Stock lending is ideal for reinvesting in new opportunities to gain higher returns.
Investors increasingly use stock lending to diversify their investments and revenue streams. It allows them to expand their portfolio and move beyond a single source of wealth, which is ideal for mitigating risk. Investors can also gain exposure to multiple markets, which can increase their chances of generating favourable yields.
Stock lending works similarly to other loan formats, in that lenders typically ask for assets to be provided as collateral. However, stock lending tends to be more complex than standard loans as borrowers will likely have more diverse portfolios, so lenders view a single stock as riskier.
Lenders typically prefer investors to have liquid, high-volume stocks, but it is possible to secure a deal even if you have a low trading volume or illiquid stock portfolio. Factors like your profile and identity, financial situation, the number of stocks you already have and your overall net worth will also shape the terms and level of interest rate lenders offer.
The loan-to-value ratio of single-stock lending can be lower than a loan taken out against a diverse portfolio of shares. Lenders may also offer higher LTV ratios and higher costs on socks they see as illiquid or challenging to sell if an investor defaults on their loan.
If successful, the stock lending process can help you access capital relatively quickly compared to other forms of borrowing. Lenders will often make a quick decision if you have the right profile and request to borrow significant funds.
However, many mainstream lenders don’t offer single stock lending, especially if investors seek a significant amount of capital. So you need to speak to a broker with access to specialist lenders who can help you secure the right deal with favourable rates and terms.
Inflation soared to a 40-year record high of 10.1% in July 2022, with consumer prices exceeding economists’ forecasts and pressure growing on households. During periods of inflation, assets like stocks, shares, real estate and commodities tend to perform better than cash or bonds. The stock market has been proven to outperform the inflation rate, so stock lending could be a solid option for many ultra-high-net-worth individuals. However, in the current economic situation, some companies will fare better than others, so it’s vital to carefully research stock options before investing.
Stock lending allows you to diversify your investment portfolio. This can help you reduce risk by spreading investments across multiple companies of various sizes, investing domestically and internationally and investing in different market sectors. Popular options that allow you to diversify your stock lending portfolio include
This is a flexible and cost-effective method for quickly accessing capital using assets as collateral for a loan. Security-based lending is a relatively straightforward process with access to the most suitable lenders. But it’s vital to consider factors like the value and liquidity of assets and how concentrated the shares are.
This approach uses liquid assets from an investment portfolio as collateral. Lombard loans are an efficient and flexible alternative to using your assets as collateral, giving you relatively quick access to liquid capital. In most cases, you’ll need a promising investment portfolio before lenders consider you for this type of financing, but most will have additional criteria you need to meet.
Single-stock loans also use assets as collateral and are often viewed as high-risk by lenders, but are popular with ultra-high-net-worth individuals. Borrowers use single-stock loans for several reasons, including to create liquidity, purchase assets or invest in property. Single-stock loans can be more complex to arrange as lenders may view them as riskier than a diverse portfolio.
Pre-initial public offering (IPO) loans are typically complex due to the constraints and risks involved. This makes it extremely difficult to navigate the ever-changing market and understand the many implications successfully. Lenders will consider factors like the valuation of shares, how much the business plans to borrow, what happens to the company post-IPO, how much equity is expected to increase and additional legal considerations.
Unlisted stock loans
Loans against unlisted stocks are complex, and the criteria will vary from lender to lender. So presenting a detailed long-term plan and overview of your financial situation is critical to being accepted and getting the most competitive terms. This remains a niche area, and not every lender is willing to offer such financing.
Like any lending process, accurately showcasing the facts and your financial situation is crucial to securing the best rates and terms. Hectocorn’s stock lending expertise and relationships with specialist vendors ensure you get the most competitive deal that match your specific stock lending requirements.
Some lenders can be cautious about some forms of stock lending, even if borrowers own equity in stable companies. But Hectocorn can help ultra-high-net-worth individuals negotiate the most attractive stock lending terms that meet their long-term investment ambitions and goals.