I guess income because you (currently still) can deduct the interests? (but yeah it seems unrelated to paying taxes, it’s just increasing leverage)
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If you sell to pay for the taxes, your wealth is exactly the same as in the loan case. The loan doesn’t affect wealth (you get equal assets and liabilities).
If you’re interested in spending 10’000 to save 3’000 in income taxes, you could as well donate to charity. You aren’t up 3’000, you’re down 7’000.
You’re right that you might make higher returns. That’s the effect of leverage. But negative returns are also amplified…
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I think money paid to the tax authorities (and sitting on that account until the tax is due) does not count towards your wealth, even if you paid too much and receive parts back later. At least recall to have read that somewhere. The impact on taxes is probably tiny but could be considered I guess.
The thread theme is Lombard loan, is it worth it.
The answer is yes, but only if you don’t need it. And if you don’t need it you are actually better off with a loan, no matter what you use as a collateral.
I have some strange ideas about money: it is a practical thing for exchanging goods; not so much for storing value. Now I do not only use loans for tax and to buy stocks, but for more or less everything I spend during a year or two. All my cash accounts are hedged with debt.
Money is very practical, allows you to do a lot of things. But it has a state guarantee to lose value. So what I do is I always keep at least the amount of all my cash accounts in all currencies that I use as debt.
That way inflation works for me: my debt loses in value, probably more than my cash does (because it is more).
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There were a few recent years where cash was pretty good tho (negative interest rate and zero or negative inflation). Though yes when rates are positive, in general cash is bad (you want at minimum the risk free rate, eg short term sovereign bonds/MMFs).
Isn’t the loan interest always higher than inflation?
At least it should be, yes. But then you have to compare what your money does. Of course I have cash accounts in various currencies for about a year or two because I want to stay liquid all the time. That is nonsense. To finance it with debt is another story because the alternative would be to sell stocks. And me needing money is a very bad reason for selling a stock. I want to be invested all the time at least 100%.
That said I compare inflation plus dividends plus median price appreciation to interest. Then it is a no-brainer.
How do you think the multiple expands if not for operational improvements?
General increase of multiples over time, expansion of multiples when combining multiple (smaller) businesses, free money in last decade certainly helped.
This report by Bain shows that value for buyout PE was essentially created through revenue growth and multiple expansion (at least from 2013-2023). Margin improvements were not a value driver and accounted for pretty much 0%.
Revenue growth doesn’t just materialize. Whether it’s organic expansion, pricing improvements, or a buy-and-build strategy, it takes planning and execution which can also be considered operational improvements. Just because it doesn’t show up as margin expansion doesn’t mean it’s not operationally intensive.
And on multiple expansion — timing, positioning, and knowing when to sell are part of the playbook. It’s easy to dismiss it as “riding the wave,” but waves aren’t predictable, and not everyone catches them.
In the end, the seller got the price he wanted — and could have waited for the same multiple expansion wave themselves. That value didn’t just fall from the sky.
I read the following question on Reddit:
Dear folks, i am planning in asking a 30k lombard loan to contribute to pillar 3 and pillar 2. Has anyone done that? Any problem with the tax office?
With the following response from a user:
Tried that two years ago and got a call by the tax office and later the pension fund that my deduction was not compliant as I used debt.
(..)
I used my broker (SQ) for a lombard loan on CHF and bought into my 2nd pillar (around 30K)
(..)
The term the tax office used was “Steuerumgehung” and they explained that the tax deduction benefit is being used in a way it was not intended/designed it to be used. They mentioned a few cases at the Bundesgericht of few folks trying it before who lost the case.
In his case, it’s probably clear that the Lombard loan was used solely for this purpose. So the Tax Office’s reasoning makes sense to me. Still, I’ve never really thought about it.
Now, what I’m wondering is:
- Let’s say I contribute the maximum 3a amount every year
- The money for 3a comes from my income from my normal nine to five job
- Now I’m taking out a Lombard loan, which I’m investing in ETFs (leverage)
Could the tax authorities now also argue that I cannot claim the 3a deduction because I took on debt at the same time? They probably can’t figure out for themselves (without further information) where the Lombard loan went, which creates a certain risk of misinterpretation, no?
Or does that not matter anyway for 3a (7,2k max), and is it more of an issue for contributions to the second pillar? (At the moment, I have no plans to make an contribution to the second pillar)
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I don’t think any tax office cares about 8k of 3a payments.
Plus if you take debt after paying 3a, the 3a couldn’t possibly have been debt funded.
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Just as a thought - this doesn’t mean the tax office is right. In fact, I don’t see any contradiction in doing what has been done here… Many people have a mortgage and a 3a and I personally also use a 6 figure margin (lombard) loan for all kinds of purposes (and always paid into 3a as well) - it’s basically not traceable which money was used for what anyway - and the lombard loan you pay is also the income of someone else who pays taxes on it in return - I’d challenge this claim or at least get some advice on it.
That being said: 30K is a very tiny sum to do this over - might make sense to just personally show up at your tax administration office and “haggle” a bit. You wouldn’t believe how effective this is 
.
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