When a significant financial need arises—a business opportunity, a home purchase, an unexpected medical bill—selling assets may seem like an easy way to access cash quickly. But for investors with highly appreciated portfolios, selling can be a costly decision.

“When clients need liquidity, the immediate reaction is often to sell,” says Matt Franks, head of Wealth Management Lending at RBC Wealth Management–U.S. “What we encourage instead is to pause and run the numbers. In many cases, borrowing can provide a more efficient path to the same cash.”

The hidden cost of selling

If your portfolio has grown steadily over the years, selling those investments can trigger a significant tax event that chips away at years of carefully compounded growth.

When you sell a security that has increased in value since you purchased it, you realize a capital gain. How that gain is taxed depends on how long you’ve held the position.

• Short-term capital gains (STCG): Applies to securities held less than a year. Generally taxed as ordinary income, which can reach as high as 37 percent, depending on your tax bracket.
• Long-term capital gains (LTCG): Applies to securities held more than one year. Typically taxed at preferential rates of zero percent, 15 percent or 20 percent, depending on your income and filing status.

On a large, appreciated position, that tax adds up fast.

“Many people don’t think of taxes as a cost of selling until they see the actual number,” Franks says. “Once you account for what goes to taxes, the actual cash in your hands is often much smaller than the market value suggests. That can change the calculus considerably.”

The alternative: Borrowing against what you own

Not only can selling trigger a tax bill that significantly reduces the net proceeds, but it also permanently removes assets from a portfolio that may have taken decades to build. A securities-based loan uses your investment portfolio as collateral, allowing you to access the cash you need without liquidating positions. You pay interest on the loan but your portfolio keeps working, and the capital that would have gone to taxes stays invested.

However, securities-based lending has risks. Suitability depends on the stability of your collateral, your ability to service the debt and the nature of your cash need. Since the loan is collateralized by your portfolio, if the value of the pledged securities falls, you may be required to deposit additional assets or repay a portion of the loan.

“Borrowing against your portfolio can be a powerful liquidity tool, but it should be approached with a clear repayment plan and a realistic understanding of what happens if conditions change,” Franks says.

Calculating the break-even point

There is a direct way to compare the two options: a calculation known as the break-even point (BEP).

The BEP determines the number of years you can carry a loan before the accumulated interest exceeds the capital gains taxes you would have paid by selling. The formula is:

BEP = (unrealized gain × capital gains tax rate) ÷ (loan amount × interest rate)

If you can repay the loan within the BEP timeframe, borrowing is the more cost-effective choice on a purely mathematical basis. If repayment will take longer than the BEP, the ongoing interest charges accumulate beyond the one-time tax cost, and selling may be more advantageous.

A practical example

Consider Craig, a hypothetical investor who needs $100,000 in cash. His portfolio has appreciated over time, and selling $100,000 worth of securities would trigger $40,000 in long-term capital gains. Because of his and his spouse’s income level, those gains would be taxed at the 20 percent LTCG rate.

Alternatively, Craig is eligible to borrow $100,000 at a six percent annual interest rate.

Applying the BEP formula:

BEP = ($40,000 × 0.20) ÷ ($100,000 × 0.06)

BEP = $8,000 ÷ $6,000

BEP = 1.33 years

This means Craig’s tax bill from selling—$8,000—equals roughly 16 months of interest on the loan. If he can repay the loan within that window, borrowing would preserve more of his portfolio’s long-term value. If repayment would extend well beyond that timeframe, the math begins to favor selling.

The bigger picture

The BEP is a helpful starting point, but it’s not the full equation. It doesn’t account for your risk tolerance, other debt obligations, broader portfolio strategy or the emotional weight of carrying a loan against assets you’ve spent years building.

There are circumstances where selling is the right call even when the break-even math favors borrowing. That’s why the BEP is most useful as the foundation for a broader conversation with your financial advisor and a tax advisor who understands the full context of your situation.

“The break-even calculation is a frame of reference,” Franks says. “It takes what may feel like a subjective decision and gives it a concrete mathematical benchmark.”

The BEP won’t make every borrow-or-sell decision obvious, but it helps ground the choice in numbers rather than instinct alone.