{
  "id": 6283600,
  "title": "Living Poor to Die Rich",
  "url": "https://urgent.news/2026/09/08/living-poor-to-die-rich",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-09-08T11:45:51.000Z",
  "source": {
    "name": "Of Dollars and Data",
    "slug": "of-dollars-and-data",
    "url": "https://ofdollarsanddata.com/living-poor-to-die-rich/"
  },
  "original_language": "en",
  "account": "A recent debate within a wealth management organization centered around levered long/short strategies, which involve taking market risk while generating tax losses to offset capital gains. By borrowing against holdings, investors can short some securities while maintaining overall market exposure as an index fund. If the market rises, short positions are closed to generate tax losses and hold long positions that have generated profits. Conversely, if the market declines, the opposite approach is taken. Depending on market performance and leverage used, these strategies can create cumulative net capital losses ranging from 30% to 200% of the original capital invested over a decade. The long/short strategy has grown in popularity, but custodians are concerned about the risks, leading Schwab to raise the minimum account balance to $10M and Fidelity to pause onboarding new clients.\n\nThe psychological costs of this strategy are often overlooked. While it generates significant tax losses, it also creates large unrealized gains that can trap investors in their positions for life. This is due to the stepped-up basis rule, which states that upon death, all assets have their basis stepped-up to their current market value, resulting in a future tax rate of 0%. For example, if an investor owns a stock that falls to $80/share and sells it to generate a $20 capital loss, they can use the proceeds to buy another stock that recovers to $100/share. In this case, the investor has a $20 capital loss and a $20 unrealized gain. Depending on their tax rates, the $20 capital loss can save them $7 in current taxes (35% of $20), while the $20 unrealized gain would cost them only $4 in future taxes (20% of $20). This results in a $3 tax savings without factoring in the time value of money.\n\nHowever, most investors tend to keep the stock with unrealized gains until their death, thanks to the stepped-up basis rule. This rule allows heirs to inherit assets at their current market value, as if the investor had bought them on the day of their death, effectively resulting in a future tax rate of 0%. For instance, in the previous example, the $3 in tax savings would now be $7 in tax savings, as the investor's future tax rate would be 0%.\n\nThis strategy can be financially beneficial, but it can also have a psychological impact on investors. People often avoid paying taxes more than they enjoy making money, leading them to hold onto positions indefinitely, even if it means giving up current consumption to enjoy future gains. This can be seen as living poor to die rich, as retirees lock up a significant portion of their capital for their heirs, rather than enjoying it themselves. While there are scenarios where deferring taxes until death can make sense, such as having a large estate, it is essential to consider the tradeoff and whether giving money to heirs at a later age is truly better than providing it sooner.",
  "summary": "I recently joined a professional organization to discuss various topics in wealth management. On our first Zoom call there was a debate around the use of levered long/short strategies. For the uninitiated, a levered long/short strategy is a way of taking market risk (like buying an index fund) while generating tax losses to offset capital gains (now or in the future). The leverage is what's…",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 1,
    "also_reported_by": []
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}