Lombard Loan: When Your Portfolio Becomes Your Bank

Imagine you suddenly need cash—whether for a major purchase or because an attractive investment opportunity arises and your market performance is strong.

The usual options would be:

• Taking out a personal loan
• Borrowing from friends or family (rarely a good idea)
• Selling assets or securities to free up liquidity

But this is where the dilemma begins.

What if you don’t want to sell your investments?
What if you want to stay invested because you believe in your strategy—or because it’s not a good time to realize gains?

There’s another, lesser-known but widely used option:
You use your securities as collateral and borrow against them. You get liquidity without dissolving your portfolio.

That’s exactly the idea behind a Lombard loan.

Your portfolio becomes collateral—and, in a way, your own “bank.” It allows you to access capital while keeping your investments intact.

It sounds efficient. But as often in finance: flexibility comes at a cost.

Before turning your portfolio into your bank, it’s worth taking a closer look—here’s what you need to know and how to manage the risks.

Lombard loan – how does it work?

A Lombard loan is a loan secured by securities. You pledge stocks, ETFs, or bonds as collateral and receive liquidity without selling your investments.

Your portfolio serves as security for the bank. In other words, it’s a secured loan: the bank lends you money because it can access your assets if you fail to meet your obligations.

Typically, only liquid, marketable securities are accepted—such as diversified ETFs or high-quality bonds.

The key factor is the loan-to-value ratio (LTV). It determines how much you can borrow relative to your portfolio value. Generally: The more stable and liquid the asset, the higher the LTV

Broad ETFs or government bonds usually receive higher valuations than volatile individual stocks. In practice, you can often borrow 50% to 80% of your portfolio value, depending on its composition.

What does it cost?

You pay interest on a Lombard loan.

These rates are usually lower than unsecured personal loans, which can cost around 4.4% to 10% in Switzerland.

• CHF loans: roughly 1% to 3% currently
• Foreign currencies (e.g., USD): can be higher or lower depending on market rates

Additional administrative fees may also apply depending on the bank.

Types of Lombard loans

1. Flexible Lombard credit line

• You receive a credit limit you can draw from as needed
• Interest is only charged on the amount used
• Best for short-term liquidity or as a strategic reserve

Downside: interest rates can change at any time

2. Fixed Lombard loan

• Fixed loan amount with a defined term
• Sometimes a fixed interest rate

Advantage: more stability
Trade-off: less flexibility

Opportunities and risks

Like any financial tool, the outcome depends on how you use it.

Opportunities

• Liquidity without selling assets
• Lower interest rates than unsecured loans
• Fast access to capital
• Portfolio remains invested
• Potential to enhance returns via leverage (⚠️ comes with risk)

Risks

• Market risk: If your portfolio value drops, your borrowing base shrinks
• Margin calls: You may need to add collateral or repay part of the loan
• Forced selling: Assets may be sold at unfavorable prices
• Variable interest rates: Rising rates increase costs
• Leverage risk: Gains and losses are amplified
• Time commitment: Requires active monitoring
• Emotional stress due to amplified volatility
• Restrictions on pledged assets depending on terms

What happens if markets fall?

A Lombard loan acts like a lever—which becomes very clear in downturns.

Example:

• Portfolio: CHF 100,000
• LTV: 60%
• Loan used: CHF 60,000

If markets drop by 10%:

• Portfolio value: CHF 90,000
• New borrowing base: CHF 54,000

You are now CHF 6,000 above the allowed limit.

→ This triggers a margin call
→ The bank demands additional collateral or partial repayment
→ If you can’t provide it, assets may be sold

The challenge:
Sales often happen when prices are already down—locking in losses.
 

Is it worth investing with borrowed money?

Because interest rates can be relatively low, leveraging investments can be attractive.

If your returns exceed borrowing costs, you profit.

But remember: leverage works both ways.

Example:

• Equity: CHF 100,000
• Loan: CHF 100,000
• Total investment: CHF 200,000

If you gain 10% → +CHF 20,000 (20% return on equity)
If you lose 10% → –CHF 20,000 (double the loss)

Before using leverage, ask yourself:
“How much risk can I تحمل if markets fall and interest rates rise?”

How to Reduce Your Risk

You can manage your risk by focusing on the following:

• Plan for worst-case scenarios: Calculate conservatively for interest rates and market fluctuations. For example, don’t assume a 1% interest rate—use something like 5% instead.
• Use a conservative credit limit: Keep your borrowing low. Instead of leveraging 50–80% of your portfolio, consider using only around 20%. This significantly reduces the risk of a margin call.
• Use diversified securities as collateral: Pledge broadly diversified assets to help reduce the impact of extreme fluctuations. Suitable options include ETFs tracking broad equity indices or diversified bond ETFs.

Bottom line

A Lombard loan can be a powerful tool—especially for flexibility and short-term liquidity. But it also amplifies volatility, risk, and emotional pressure.

It’s best suited for:

• More experienced investors
• Or situations where you need short-term liquidity and have a clear risk and repayment strategy

Used wisely, it can support your wealth strategy.
Used carelessly, it can quickly become expensive.