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 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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Those of us with prior experience with private investments have chosen to avoid them in the future. Especially those which come with capital calls.
>> Borrowing To Invest In Venture Capital
I invite you to look at it from a different angle. Money are fungible: borrowing, full stop. You can view it as borrowing to cover housing expenses, so it’ll feel like a mortgage, which many psychologically view as more acceptable.
I’m still accumulating, so I do the opposite: view my mortgage as a cheap way to leverage investments a bit.
Sure, that makes sense when you are in accumulation mode. Debt is a useful tool.
I’m just sharing how your mindset might change after you decide you have enough.
Well I am FIRE or just retired and use margin loans for things like this.
Cool. Please share an example when you took out debt to Invest.
Do you think you would have FIREd at a different time or not taken out debt to invest for if you had not received a large inheritance? Btw, I’m not sure retiring at 60 is FIRE, at least not here in America.
I’m wondering if there is a correlation with taking more risks with the house’s money or not.
Thx
I have to disagree. By your definition I fired at 29 after a 7 figure plus windfall. Do oil and gas investments now along with VC investments with a top tier valley fund, own real estate, other businesses investments and equities with a 15 plus million net worth. Cash flow in excess of 200,000 a month, but still use lines of credit to finance investments when cash calls exceed monthly cash flow as not to draw down investments and pay off the lines on
Months with lower capital commitments. Mid 40’s married with no children and invest 7 figures plus a year.
Sounds good to me. Have you got to $100 million net worth yet? If not, could be a good goal to shoot for.
After I had kids, I mainly wanted to maximize my freedom to spend time with them. So taking on debt increases my risk profile to lose that freedom before they leave the house.
It would be nice to make more money and be wealthier, but I’m unwilling to take on debt or more risk than I have to at this stage.
Just curious Financial Samurai…. i would imagine your net worth is approximately $7-$8million yet you don’t have liquidity for a $160k call? Since you have 2 young kids and you don’t have a 9-5 job it would be advisorable to keep $400-500k in t-bills or money market funds as opposed stocks in case the market turn?
Could be a good move especially with rates increasing. Nice to earn 4% in 1-year treasuries again, and 5.2% in 10 years.
I just don’t have the cash, hence, the post.
How did you come up with a net worth of $7-$8 million?
Hah! $7-8MM! Maybe in 2015! He is basically saying that he’s got liquidate some gains (I’m assuming some equities) to make the capital calls. First world problem. HELOCs and SBLOCs are not in the cards for his stage of life. However, you do have a point, T-Bills & fixed income is looking better for retired folks & cash-flow addicts. I’m looking at more lending these days w/ yields going up.
His About page suggest his net worth is higher.
I retired a year ago 100% debt free. No mortgage. No credit card debt. No student loan debt (even for our kids in the 20s). No auto loans. Since then we bought a 2nd home and put 50% down. Suddenly we have $200K in debt again! The difference is that that debt is less than 1% of our cash and liquid assets. We have a rental house that is paid off (owned for 20 years. I’ve also maintained a $75K HELOC on our primary home and only use that for short-term emergency expenses (less than a week) before I can transfer funds and pay it off. We were looking to buy another house and I set up a couple of Pledged Asset Line with Etrade and Empower. That way we could potentially pay cash for a house and get a mortgage after the purchase. Combined they total $785K, plus we have $360K in cash equivalents. We’ve never used the PALs though, and we could pay off the mortgage, but I’d rather preserve the optionality of a $2K per month payment at 5.49%. By the way, I’m actually pretty debt adverse. Never had any debt running a business for 20+ years.
If a lot of this is about the way you feel about the situation, rather than pure economics of it, here’s something to consider:
Given your expected capital call schedule, you were expecting to commit $200-300k. Presumably, you had this coming in as income but were choosing to invest those funds elsewhere for the time being.
$160k is about 50% of your annual commitment to this fund.
So, really, you’re just looking at extra funds you might have invested over the last 6 months elsewhere that should have been reserved for these capital calls instead.
So if you were to sell your recent investments, you’re likely looking at a relatively small portion that would be taxable income. Vast majority of it should be tax free cost basis.
So look outside of VCX at your highest cost basis / lowest gain liquid investments.
If you can’t find such investments in your portfolio, go with Bank of Mom and Dad. Especially if you’re talking about just 6-12 months and they’re liquid. No shame in that. I don’t think my relatives should be ashamed or have any negative feelings about getting a low / no interest loan from me. Sometimes it’s helpful to sanity check our own feelings against how we think others should feel in our situation.
A decent way at looking at things. I’ll have to see how much and what I invested in this year.
With the Bank of Mom & Dad, I still feel shame in getting a bridge loan, so I won’t do it. I have to be in dire straits to ask for one.
Would you want your kids to feel shame if they have to take a bridge loan from you in the future? Isn’t that partly why you’re investing so aggressively – to provide for your kids in the future?
Also, you could make it a win-win and pay an interest to your parents higher than whatever they’re earning now. That should still be lower than security loan rates.
Plus, the loan would only be for 6-12 months, right?
Yes, bc some shame is a self-correcting mechanism to plan better and do better next time.
Don’t want to be a clutch unless it’s a serious situation.
How are your kids doing and how are you investing for their future if they are still small?
Thats a good point. I don’t want my kid’s safety net to become a moral hazard that’s relied upon too much.
My kid is still in preschool. I’m not doing anything specific “for their future”. My view is that whatever I’m doing to maximize our net worth (within our risk and investment preferences and invest) is in their best interest in the long term.
But AI has been making me reconsider our risk preferences. I’m keeping a much higher concentrated position than I otherwise would have because of AI exposure.
Cool. I really started investing more heavily for my kids in 2023 after I saw how much destruction AI was having on the labor market.
In retrospect, I wish I had invested more. I think it’s partially because I live in San Francisco that I see it’s effects so clearly.
Yeah, I’m sure SF gives you quite the unique perspective on AI.
I attended an info session for the Alpha School recently far outside of the tech enclaves. Their academic content is delivered primarily via AI instruction for 2-3 hours per day with the rest of the day filled with life skills “workshops”. People are making big changes to prepare kids for their best guess at what society looks like after 10-20 years AI.
I completely share your sentiment. For me, it comes down to autonomy and control. I recognize that staying entirely debt-free means leaving some potential growth on the table, but the psychological dividend of knowing I owe nothing to anyone and having the freedom to liquidate my assets strictly on my own terms is worth the trade-off.
Yes indeed. Going backwards feels bad.. even if it won’t doom you. Progress is happiness.
Hi Sam
I was shocked to read your article regarding the VC call. I retired almost 6 years ago. Retired at 55. Once you are retired, I do not see the need to put yourself in such a situation. I have my investments providing an income in retirement. What you are doing, in my opinion, is causing yourself and your family unnecessary pain. These risky behaviours are not what retirement is all about.
First, your real estate fiasco; now this? Why do you feel you need this? If your income fulfills your mandate as a retired person, taking on this endeavour does not make any sense. I read your book; I look forward to every line you write and applaud and share your ideas, but I can not agree with you here.
Definitely, you do not borrow from your retirement money to pay for this project. It does not make any sense. Maybe next time you truly need to evaluate what it means to be retired and how much risk you should really take. I have about 10% of my portfolio in growth stocks and VGT and KOID, but these investments are set and done.Nobody is calling me to raise capital.
This peace of mind is priceless, and this is the real spirit of FIRE. My retirement is safe, my sovereignty is protected, and I can sleep at night. Good luck to you,i hope this matter can be resolved, and you and your family can achieve peace again.
AdrianK
Hi Adrian, thanks for your thoughts. Even the best laid plans get tested, and my error was modeling a 30% capital call in the first year, not a 50-60%. So now it’s lesson learned in the age of AI and rapid capital raising on ever-increasing valuations e.g. Discovery Loop came out of the gate at $1B/$10B, and is now looking to raise $5B at $50B less than two months later.
My motive for investing is 95% for my two children, who are 6 and 9, and who will face an incredibly uncertain world once they graduate high school or college. I’m investing for their security, as a hedge against AI’s potential destruction of their ability to earn a living and support themselves.
I’ve found when you have a motive to do something for the people you love, NOTHING will stand in your way to achieve your goals. I am willing to do whatever it takes to ensure my family survives.
And the more I invest on their behalf, the GREATER the piece of mind I get.
Hope that makes sense. And I *think* you agree with me, on not borrowing to invest in retirement. So I’m not sure what you don’t agree with exactly.
How are your kids doing?
Definitely I understand your point about the kids, the borrowing no. Wish you the best, and keep up your amazing work; your FS is a unique publication. I don’t always agree with your views, but it is fresh, thoughtful, and engaging. Thank you!!
I know some people that use this debt type for living expenses. They are very anti-selling anything to avoid capital tax… I haven’t done the model, but I wonder what net worth you need to have for this to be a valid way of spending your wealth. I figure eventually the debt has to be paid and if they pay it when you die, you never pay taxes.
Many wealthy people borrow against their assets as a tax advantage. They live off the debt, instead of selling assets and paying capital gains taxes. Do you see any downside to this?
The cost of debt in a high interest rate environment and the potential addiction to take more debt than you should. Go on 35% margin before a 30% decline in your investments, and you could get wiped out.
Debt is what can kill even the richest person.
Good points on the feeling of going backwards with taking on debt. 7-10% interest or even more potentially sounds very hard to swallow. But at least it’s an option you know you have now even if you never use it.