Taking a Mortgage to Buy Stocks Is Risky Business

While it’s tough to advocate for the use of leverage to buy more stocks, the question of how aggressively to pay down a mortgage, or simply how to think about your primary residence and mortgage as part of your overall investment portfolio is critical. For example, you shouldn’t own low paying bonds if you are stuck in a high rate mortgage. And with rates so low, you also probably shouldn’t have a tiny stock portfolio in exchange for gaining a lot of equity in your home. The bottom line is unless you have enough money that you never have to worry about running out, it is critical to have an intelligent asset allocation based on your overall net worth – not just your liquid net worth.

Should You Pay Your Mortgage With Stocks?

Should you take out a new mortgage or home equity line of credit and spend the money buying stocks? The question may sound totally crazy. It’s certainly not for the unsophisticated. But events in the stock, bond and mortgage markets in the past few weeks have made it a question you have to ask. What’s going on? Mortgage rates have collapsed to unknown lows. Meanwhile the dividend yield on stocks has risen. Remember, too, that you get tax breaks on both. Bottom line: For many people the mortgage rate is now lower than the yield on a lot of blue-chip stocks. …

Read the full article at Wall Street Journal’s SmartMoney.


The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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