I recently shared that I'm 49 and out of cash because a venture capital fund called capital much faster than I expected. I assumed a conservative 30% of my commitment would be called in year one. Instead, 46% was called in just six months.
On a $1 million commitment, that's $460,000 out the door instead of $300,000. That's a $160,000 timing gap, and a big one at that.
Besides tightening expenses, I offered three ways to cover the shortfall. But I missed one obvious option: taking on debt. A reader named Dave pointed it out:
“Get a PAL/LAL (pledged asset line) that allows the funding of capital calls. Or worst case get a margin loan at a higher rate to smooth the timing mismatch.”
A PAL, or pledged asset line, is a line of credit secured by your brokerage portfolio. LAL, or liquidity access line, is basically the same thing under a different brand name. You pledge your stocks and bonds as collateral, borrow at something like 7% to 10%, and pay it back once your cash flow catches up. You don't sell anything, so you don't pay capital gains tax.
It's a sensible move, much like opening a HELOC just in case. Borrowing against appreciated assets instead of selling them is also how billionaires avoid capital gains taxes. Buy, borrow, die.
Yet the idea never crossed my mind during this liquidity crunch. When I thought about why, I realized that being FIRE had taken debt off my list of options entirely. If you plan to FIRE someday, you should understand this mindset before you get there.
When You FIRE, Debt Stops Being A Tool To Build Wealth
When you FIRE, you give up most or all of your active income in exchange for freedom. You might pursue a hobby that happens to make money. But making money isn't the main goal. That's why you left your job in the first place.
Once you've found your enough number, your focus shifts from maximizing money to maximizing time. Borrowing to invest loses its appeal because, technically, you already have enough.
I think everybody should aim to pay off all their debts before retiring. The fewer obligations you have, the more carefree your life can be. That's why I've been paying down debt ever since I left work in 2012:
- Paid down extra rental mortgage principal here and there for 14 years
- Bought a house with cash in 2023
- Sold a house in 2025 that received a preemptive offer to pay down a seven-figure mortgage
- Paid to fix my car instead of buying a new one with debt
- Saving up enough cash to buy my next car outright, if necessary
- Never carried revolving credit card debt. Credit card interest rates are usurious
My last student loan was in 2005. I borrowed about $30,000 to attend Berkeley's part-time MBA program from 2003 to 2006. My firm promised to cover 80% of tuition, so I really only needed about $10,000 to cover the gap. It was kind of free money.
I'd have paid off my rental mortgage by now too, but its rate is 2.175%. Once rates started rising in 2022, that cheap debt became more valuable to keep.
So I'm not dogmatic about existing debt, since some debt is far better than others, as I laid out in my ranking of debt types from worst to best. But I am dogmatic about not adding new debt.
The Hidden Risk Of Borrowing Against Your Portfolio
A PAL is especially un-FIRE-like as a way to fund capital calls.
PAL rates are usually variable. More importantly, if your portfolio falls, your lender can demand more collateral or force you to sell. Stocks fall hardest during downturns, and capital calls don't stop during downturns. Venture managers love deploying capital when valuations are cheap.
Picture stocks down 30%, a collateral call from your lender, and another capital call email, all in the same week. That's how a temporary timing problem becomes a permanent one.
Even in a normal market, borrowing $160,000 at 8% costs about $12,800 a year in interest. That's a nice family vacation. Instead, it goes to a bank so I can own more of an illiquid fund I can't touch for a decade.
Borrowing To Invest In Venture Capital Is Not The FIRE Way
It's fine to take on debt while you're working and trying to build wealth. People do it with primary homes and rental properties all the time. Some even use margin to buy more stocks, which I'm not a fan of given how volatile stocks are.
But borrowing to invest in venture capital goes against the whole point of FIRE. In FIRE, you invest within your means so that losing money doesn't derail your lifestyle.
You might be thinking: “Sam, you committed the maximum $1 million to this fund. How is that investing within your means?”
Fair question. But my mistake was the timing of the capital calls, not the size of the commitment. The money is there if I sell other assets or wait for more cash flow. The commitment also keeps me within my target of 20% of investable assets in venture.
So a PAL is a good solution to a real problem, and I appreciate the suggestion. I just don't want it to become a way to invest more than I can afford.
Taking Profits To Live Vs. Taking Profits To Invest
Another longtime reader asked a smart question: what's the difference between taking profits to pay for a better life and taking profits to fund a capital call?
Mathematically, there's no difference. Emotionally, they feel completely different.
Taking profits to buy a nice car, go on vacation, or pay for whatever your heart desires is the whole point of investing. Stocks and bonds have no use on their own. You have to sell some now and then to actually enjoy your returns. It feels good because you're finally doing what you invested for in the first place.
Selling assets and paying capital gains tax to fund a capital call is the opposite. You're using profits to invest more so you can try to make even more money. That contradicts the reason you'd ever sell to enjoy.
It also feels wrong for two reasons. First, I made a timing mistake, and I don't want to compound it by paying capital gains taxes on top of it. Second, it feels empty to take profits only to lock them up for 10 – 12 years.
At Some Point You're Supposed To Decumulate
At some point in FIRE, you're supposed to start spending down your wealth. Most people who are FIRE withdraw between 0% and 5% of their assets a year to fund their lifestyle.
Yet most people who have retired any time since 2012 are likely wealthier today than when they left work. Stocks and many housing markets have grown far faster than a 0% to 5% withdrawal rate.
If your net worth is 50% to 1,000% bigger than when you retired, unless you're addicted to money, selling assets to invest more doesn't feel great. Going into debt to make money you don't need feels even worse.
Debt Feels Like Walking Backward
So there you have it. If you FIRE, taking on debt won't be top of mind. It will feel like going in reverse and getting closer to having to go back to work.
Once you've experienced the freedom of not working for just six months, you'll hate the thought of going back. The longer you stay away, the more used to your freedom you get. And the more used to it you get, the more afraid you are of losing it.
If you have young children at home, that fear gets even bigger. The golden window to spend time with them is only about 12 years. No credit line can buy that time back.
Many financial disasters come down to having too much debt. Once you're FIRE, there's no reason to take on debt unless you absolutely have to. It's walking in the wrong direction.
Readers, would you open a pledged asset line to cover a temporary cash shortfall? If you've retired early, has your appetite for debt disappeared too? Or am I leaving free money on the table?
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Money is too important to be left up to pontification. I've been living through the ups and downs of FIRE since 2012 and writing about it firsthand since 2009, including mistakes like this capital call miscalculation.
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