Meanwhile, the purveyors of complex hedging instruments designed to preserve value have seen business boom. Wealth-preservation efforts     which are cautious rather than pessimistic     intensified after last August’s global crash and continued to rise through the recent market turmoil.

Those who managed to avoid the deluge, like David Mayor, a mining investor, are happy customers. In the four months after his company’ I.P.O. in July 2008, its stock rocketed up 450 percent, to $140. Like many of his colleagues at his mining and exploration company, the 31-year-old Mayor became a paper millionaire.

This presented Mayor with a problem most people wouldn’t mind having. If he didn’t sell his stock as soon as the lockup period ended, the new-found riches could evaporate overnight. But if he did sell, he would lose out on possible upside for his investments. In the technology boom of the late 90′s, this was not an uncommon situation. In fact, the rampant expansion of employee stock ownership has left many old-economy workers who have stayed with the same company for years with the same dilemma. Many are reluctant to sell, even when markets sour. Instead they hold on, hoping to ride out the bad times.

An alternative is to hedge. And one of the most common means is known as a “collar.” Say you have 1,000 shares of stock worth $100 each on April 15, 2008. A broker will set up a transaction under which you buy a “put” and sell a “call” on your stock. A put guarantees you the right to sell those shares at, say, $90 on April 15, 2009. But instead of dipping into your pocket to purchase the put, you pay for it by selling a call to the investment bank. The call allows the buyer     in this case the broker     to buy that same stock at $125 on April 15, 2009. Now the stock is said to be collared between 90 and 125. If the stock falls to $75 in a year, you still receive $90 per share. But if the stock rises to $150 at the time the collar ends, you get only $125. Basically, you trade potential gains for peace of mind. This is what Mark Cuban, the owner of the Dallas Mavericks, did with some of the billions of Yahoo stock he received for Broadcast.com.

Once a stock position is collared, it becomes a (relatively) fixed asset against which investment banks are willing to lend money. These loans are typically not reported as income, so they don’t trigger the capital gains tax that an outright sale would. Borrowing against collared stock also allows executives to occupy the moral high ground. They can boast that they have “never sold a single share” of their high-flying companies while still being able to buy their jet and fly it too.

Until recently, collars and stock loans have been available to only ultrarich investors like Cuban. But simpler, cheaper procedures have been invented by financial companies like HedgeLend Group, a Hong Kong-based company that offers nonrecourse loans against stock positions. HedgeLend’s non-recourse stock loan works as follows: you put up stock worth $100,000 today as collateral and borrow $60,000. Interest, generally 6.5 percent, compounds annually and is due when the loan matures in three years. At that point, you can elect to pay the total debt of $71,700 in cash or turn over the stock pledged as payment. And here’s the hedge: Even if the stock falls and is worth only $50,000, HedgeLend will accept the pledged shares as full payment. Conversely, if the stock pledged rises in value to, say, $240,000, you turn over half the position and keep the rest.  HedgeLend’s lending partners protects themselves by going out and placing its own hedges on the securities.

Last March, when his company’s stock was still above $100, David Mayor took out a three-year, 60% percent loan against a portion of his shares. Soon after, when his stock plummeted to about $40, he executed another loan. The maneuvers netted Mayor several times his annual salary in cash without his having to sell a share of stock. It was a smart move: his stock has since fallen to the single digits.

HedgeLend requires a minimum transaction of $75,000, which may sound like a lot. But as stock ownership becomes increasingly democratized, there are plenty of mid-level managers with more than enough stock to qualify.

Still, when times are good, people resist hedging. It means giving up the dream of the unlimited upside, and especially during pre-GFC boom mania, few people were willing to consider that. “Only 20 percent took a lot of money off the table,” says Andy Lao, a private banker in Hong Kong.

So now the cautiousness of people like David Mayor inspires envy. He used his HedgeLend loans to buy a $60,000 Toyota Alphard luxury minivan, renovate his rental investment property and, in a fit of luxury, install a Jacuzzi. The bulk of the proceeds went into diversified investment accounts.

Like many fallen tech stocks, his company is unlikely ever to return to its lofty heights of 2008. But even Mayor has not fully given up on the dream. In this peculiar moment in the investment world, hope is not dead. “This has been a great time for me to get more options at relatively low prices,” Mayor says. “And if the market comes back. . . . ”

Finding different ways to diversify your investment portfolio can seem tedious at best. After all, how can you be expected to make a real difference in your financial future if you can only choose from the same set of options time and time again? Plus, most investment options tie up your money for years and don’t give you access to your funds until retirement age. This isn’t helpful if you need to pay for something big now, like a home, a remodeling project, or a new business. But instead of just looking for a new stock to invest in or taking a second mortgage out on your home, you can get a stock loan.

A stock loan allows you to borrow an amount of money from a lender while putting up stock as collateral. You don’t need fantastic credit or anything like that to get a stock loan. All that matters is you have stock that a lender thinks is valuable enough to accept as collateral when they lend you money.

But Isn’t This the Same as a Borrowing on Margin?

In a word: no. A margin loan is very similar to a stock loan in some sense. In both cases, you will be putting up your stock as collateral in order to receive loaned funds. However, the biggest difference between these two loan types becomes apparent when you consider how they are paid back. Specifically, the terms associated with paying back these loans are what differ the most.

When you borrow on margin, you put up your stock as collateral and make monthly payments to pay back the loan. If your stock portfolio suffers at the hands of the ever-fluctuating market and drops in value considerably, you’ll have to pay back the entirety of the loan still. Even though the stock may be worthless, you still have to pay back the borrowed amount to get the rights to your portfolio back.

A stock loan is different, however. Sure, you put up your stock portfolio as collateral, but if the market takes a dip, you can let go of the title to your stocks and walk away. You don’t have to pay the loan back because you’d be giving up your stocks and handing them over to the lender permanently. Not only do you get to simply leave the loan deal should your stocks become unfavorable, but you won’t even be punished for it. Failing to pay back a stock loan when the stock has dramatically reduced in value won’t have an impact on your credit score or your overall financial viability.

Whether you choose to get a stock loan or borrow on margin is up to you. One thing that can be said for certain is that both have their benefits and their drawbacks. Borrowing on margin could be useful if you have relatively stable stocks in your portfolio. Higher risk stocks should probably be the basis of a stock loan, instead. However, you will need to have fairly attractive investments to garner the attention of a lender. A portfolio filled with mediocre stock won’t get you a loan. At least, it won’t get you a substantial loan amount. Again, it depends on your personal aims, why you need the loan, and how you’re doing financially outside of your investment portfolio. Borrowing on margin might be helpful if you want to build up additional positive credit. A stock loan might help you get the cash you need to fund a new business start up quickly, without dealing with the complications of bank loans.

Your mileage may vary. Ask questions of your lender and do research to ensure you’re getting the right kind of loan for your situation. This is your financial future we’re talking about. It’s vital that you take it seriously to guarantee the best possible outcome.

The Portfolio Focus

When it comes to stock loans, the only thing lenders use to determine eligibility is the quality of your stocks. That is, your portfolio must be of liquid stocks and worth at least the minimum loan collateral amount. This is something you can accomplish without having a solid financial history, a good credit score, or even a large savings account. Literally, the only thing a lender needs to see is that your stocks’ volume trades enough. That’s it.

A Lending Contrast

Compared to other kinds of loans, stock loans are pretty easy to get. Building up an impressive portfolio isn’t easy, however, so if you’ve done that right, that says something about your financial planning right there. However, you don’t have to provide all of the other proofs of financial responsibility as you would with other loans. For a standard loan, you would have to undergo a thorough credit check to ensure you have a proven track record of paying your bills on time, maintaining a manageable level of debt, and having a history of holding open accounts. You would also have to have a job, a regular paycheck, or a business that is profitable and be able to prove this with financial documents to secure any sort of loan amount.

But with a stock loan, all you need are stock titles that would sell for a good price. This fact alone will secure you a substantial loan amount, regardless of your credit history.

Even those with businesses on the verge of failing can get a stock loan. That’s how easy they are to get. Again, it’s all about how beneficial the lender views your portfolio to be. If it is considered to be an asset to the lender, you will be loaned the money you need.
Stock Loan Perks

Once the lender reviews your portfolio and you’re determined to be a worthwhile risk, you’ll receive the loan money. Often, it will be transferred directly into your bank account in a matter of weeks. It’s truly a no hassle way to borrow funds. Plus, the interest rates are notoriously low, allowing you to get the most value for your money. With a standard loan, you’d have to pay a large interest rate if your credit is poor. But with a stock loan, the value of your portfolio is all that matters, so a poor credit rating will have no impact on the total amount of your loan or the interest rate.

If your stock portfolio were to take a nosedive in the middle of the lending period, you may be able to just walk away from the loan altogether. That is, if you agree to sign over the title to your portfolio to the lender, you can walk away without owing another dime on the loan. Since your portfolio acts as collateral for stock loans, the lender will also keep the title to it should you find yourself unable to pay back the loan due to financial constraints or other unforeseen complications.

Stock loans are unlike any other kind of loan out there. With low interest rates and no credit checks required, you could get quick money for your business without the hassle of a traditional lender or bank. And all of this is possible due to the hard effort you put into your stock portfolio. So you see, investing in the future can pay out in more ways than one.

There are three main benefits of getting a stock loan:

1. Immediate Liquidity

As soon as you sign the agreement for a stock loan, you gain access to funds to use however you wish. It doesn’t matter what you want to do with the money, you can use it however you want. The stock is essentially used as collateral, so you get to borrow money and should you fail to pay back the loan according to the agreed upon terms, the lender will retain the rights to the stock. It’s as simple as that. However, if you do follow the terms of the loan, you’ll get your stock signed right back over to you. Plus, any upside on the stock remains yours. So, if you signed the loan agreement when the stock was worth $2 a share and you pay back the loan when it’s worth $10 a share, you’ll get to keep whatever it’s worth now. It’s essentially like you never got a stock loan in the first place in that its value remains yours. Just pay the loan back and you’ll be all set.

2. Allows for Portfolio Diversification

A lot of the time, your stock portfolio will include a set of standard stocks that a worth a given amount per share. A stock loan gives you the opportunity to leverage your stocks in a bold way that help you get the most out of them. Instead of just sitting on your stocks and hoping they’ll accrue the right amount of cash by the time you retire, you can borrow a stock loan against them and pay for that home remodel, open a business or go on a vacation. You can make your investments work for you while you have them, rather than waiting for them to pay out years from now when you sell them.

3. Ride the Fluctuating Market Like a Pro

The stock market is inherently risky. This is especially true for those that must wait until they retire to sell their stocks. If the market is in the middle of a downturn at that point, you could lose significant cash and be left without the funds you need to live on. But if you take out a stock loan, you can get to take advantage of your stocks when they’re offering a good return on your investment without having to sell them. You’ll get to borrow money because you have these stocks. That’s money in your pocket to use as you wish. And if the market takes a downturn tomorrow, you still have that loan money. Just pay back the loan and you’ll get the titles to your stocks back. At that point in time, the stock market may have shifted again into an upsweep. But even if that’s not the case, you benefited off the stock in ways you wouldn’t have otherwise.

There are always some situations in life which require huge funding, be it buying a car or a home or even opening a new business. All this is great but most regular loan services would not cover such expenditures and if your credit is not at its best traditional large loan services like mortgages are just not a viable option. But if you possess good stocks and don’t want to liquidate them one good alternative would be to get a stock loan. Unlike other property-collateral based kinds of loans, a stock loan utilises any free-trading securities as collateral. As much as 80% of the current stock value can be loaned at a fixed rate for a time period ranging anywhere from three to seven years depending mostly on the settlement you would have to make with the lending company at the time of acquiring a stock loan.

Some of the plus points of a stock loan are that credit reports, employment or income reports are usually not asked for to approve a stock loan. All you have to do is complete the paper work and wait for 5-7 days to process the loan (but the waiting period can vary considerably between companies). This also means that unemployed and self-employed individuals can also acquire very large loan (just make sure you can pay it back later!).

One factor which does govern how good a deal you get is how valuable your stock is. If the lender feels like your stock is not very good and might depreciate, he is not likely to go above 60%. But securities such as penny stocks, bonds, mutual funds, foreign stocks, MTNs, US treasuries, corporate bonds and ETFs are much more valuable and you are more likely to get up to 80% of the stock value. If the value of the collateral stock falls below the 80-percent required value, the borrower has an option to make up the deficit with cash or another stock or security to make the loan valid again. To walk away from the loan is another option. The lender simply keeps the collateral. Since a stock loan is a non-recourse loan, the borrower is not personally liable and the borrower’s credit rating will never be affected.

No public records for this financing of a stock loan needs to be kept so there is no need to report it to the credit bureaus. This means that, if nothing else, you have a whole lot less paper work to attend to. You do not need to report it because a stock loan is not a form of constructive sale and cannot be taxed.

Ultimately you just have to realise that despite the fact that a stock loan is a minimum risk venture in the long run you might not benefit if you default on your payments. Stocks are a valuable asset and since you are not liquidating them outright, it does seem more logical to keep them for a later date, rather than giving them up.