The Deal
Provided for context. This calculator ignores investment-level taxes — the leverage decision is taken pre-tax.
Financing & Liquidity
What your cash earns if it stays liquid (T-bills, money market, short bonds).
Interest-only; principal repaid at exit.
Scenario A: Pay Cash
At End of Hold (7 Years)
Scenario B: Borrow & Stay Liquid
At End of Hold (7 Years)
Break-Even Analysis
Max Hold Period
9.4 yrs
Longest hold at which leverage IRR still meets or beats the cash (deal) IRR. Past this point the interest drag overtakes the compounding gains.
Max Borrow Rate
5.16%
Highest pre-tax borrow rate at which leverage IRR still matches the cash IRR for the chosen hold period.
Min Liquid Yield
6.07%
Lowest liquid alt yield at which leverage IRR still matches the cash IRR for the chosen hold period.
How this works
Both scenarios make the same investment, so the deal's return cancels out of the comparison — what really matters is whether your liquid alternative compounds faster than your borrowing costs accumulate. Cash drains your liquidity entirely. Leverage keeps your cash compounding in a liquid alternative (T-bills, money market, short bonds) while you pay interest-only on the loan and repay the principal at exit.
If interest is deductible, the after-tax borrow cost drops to rate × (1 − marginal tax rate). Section 163(d) limits investment-interest deductions to net investment income, and business-interest rules differ — this tool assumes the deduction is fully usable, so confirm with your CPA before relying on it.
Paying cash vs. borrowing to invest
When you have the cash for a purchase, such as real estate, a business interest, or a private investment, you can either pay for it outright or borrow and keep your cash invested elsewhere. This calculator compares the two. Because the purchase itself is the same either way, the question comes down to one comparison: does your invested cash earn more after tax than the loan costs after tax?
How to use the calculator
- The deal: enter the investment amount, hold period, and expected return.
- Financing: enter the borrowing rate and whether the interest is deductible, along with your marginal tax rate.
- Liquidity: enter what your cash would earn if you kept it invested, for example in a liquid alternative or bond fund.
The results show the after-tax cost of borrowing, the after-tax growth of the cash you kept, and which path leaves you with more at the end of the hold period.
What the numbers leave out
Borrowing adds risks a spreadsheet can understate: variable rates can rise, lenders can change collateral terms, and a falling market can force a sale at the worst time. Keeping cash invested also preserves flexibility that is hard to price. For strategies that use leverage inside a portfolio, see structured notes and long/short strategies, and for borrowing against assets, UHNW lending and liquidity.
Frequently asked questions
Should I pay cash or borrow to make an investment?
Compare the after-tax cost of borrowing with the after-tax return you would earn by keeping your cash invested. If your liquid assets are expected to earn more after tax than the loan costs after tax, borrowing can leave you ahead; if not, paying cash usually wins. Liquidity, risk tolerance, and the possibility of a margin or collateral call also matter.
Is investment interest tax deductible?
Interest on money borrowed to buy taxable investments is generally deductible as investment interest expense, up to your net investment income, if you itemize. Interest used for personal purposes is not deductible. Qualified dividends and long-term capital gains count as investment income only if you elect to have them taxed at ordinary rates. A CPA should confirm treatment for your situation.
What is a securities-based line of credit?
A securities-based line of credit is a loan secured by a non-retirement investment portfolio. It can provide liquidity without selling investments, but the lender can demand more collateral or sell pledged assets if their value falls, and rates are usually variable. See our guide to SBLOC rates and how they are set.
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