Should I dip into my HELOC to buy?

[ER_Hopeful]

I have a HELOC account with a credit union($100k limit) which I never touched, interest rate is prime minus .25% I think(need to check, haven't looked at it for a long time). with the market as low as it's, I'm thinking tapping into this $(maybe 10K to 20K) to dca into my Target Retirement and a couple other funds.

do you think this is a sound idea? I'm already maxing out my 401k, IRA and all my monthly savings(anywhere betwn $500 to $1500) are going into the market(so need more investment $).

some quick stats:

35 yo, 2 kids, wife-SAHM, income: slightly under $100k. job seems fairly secure, but who knows.

 

[REWahoo]

...do you think this is a sound idea?

Everyone has their own risk tolerance. Borrowing against my house to buy stocks is far beyond mine. I would not do it.

 

[maddythebeagle]

Sure....why not. Support us all in getting our account balances back up...

 

[ziggy29]

If you had a fully paid off home, owned free and clear, would you mortgage it in order to invest?

 

[Rustic23]

I was just thinking about the 'Pay off the House threads'. I wonder how many of those in the 'keep a large mortgage' and invest in stocks are feeling now. More to the point I wonder how their wives feel! Especially if there homes or under water!

 

[ziggy29]

Everyone has their own risk tolerance. Borrowing against my house to buy stocks is far beyond mine. I would not do it.

Same here.

At least one mildly refreshing thing about this question is that it's not being asked with the market at an all-time as it usually is. While I still wouldn't do it, it's at least good to see people going contrary to the fear reaction and thinking about accumulating stocks when they are cheap and not when they are in a bubble.

I wouldn't ever borrow to invest, and especially not by putting my house up as collateral.

 

[mews]

35 yo, 2 kids, wife-SAHM, income: slightly under $100k. job seems fairly secure, but who knows.

==============

There is risk, and there is RISK. Read what you posted above and tell me if it is a smart move.

Me, I say not.

ta,
mews

 

[FIREd]

I vote NO. I think that borrowing money to invest in the stock market is a big mistake especially if your income is only "fairly" secure. Even Warren Buffet thinks it's unadvisable to invest borrowed money. If you want to invest more money in the market, either cut your expenses or increase your income.

 

[Helen]

Another vote for no. I'd rather be building up cash reserves in your shoes. I think we are going to experience a lot more job loss before things get better.

 

[Meadbh]

Definitely, absolutely not within my risk tolerance. YMMV.

 

[Nords]

do you think this is a sound idea?

I think you should only do this when the market's at a bottom.

I've called the bottom at least six times in the last year. How many times do you think you'll be able to call the bottom?

 

[guest]

Absolutely......not.

 

[ER_Hopeful]

ok, I guess that wasn't such a good idea after all. I'm glad I ran it by you guys first. Greed can make you do stupid things, you know.

 

[haha]

ok, I guess that wasn't such a good idea after all. I'm glad I ran it by you guys first. Greed can make you do stupid things, you know.

Aubrey McClendon a formerly very rich and a very sharp gas finder got sold out of his huge poosition in CHK, the company that he founded because he was carrying his position with debt. The stock is up huge today, but McClendon is not.

Since this can happen to the guy who runs the company, what chance do we have?

Remember too, that while it is nice to have the markets going up for a change, this doesn't say much about what comes next. If you can get one thing right- valuation- you will do fine. If you try to get both valuation and timing right you are very likely to lose.

ha

 

[d]

this sounds like a great idea for anyone who doesn't find the stock market (or life in general) to carry sufficient risk

 

[guest]

Remember too, that while it is nice to have the markets going up for a change, this doesn't say much about what comes next. If you can get one thing right- valuation- you will do fine. If you try to get both valuation and timing right you are very likely to lose.

ha

well said!

 

[aaronc879]

ok, I guess that wasn't such a good idea after all. I'm glad I ran it by you guys first. Greed can make you do stupid things, you know.

I wouldn't say it's "stupid", just very risky. The upside could be big but as the sole earner supporting 4 people I think it's too much risk. I wouldn't do it. It seems like your doing well already why take on so much more risk?

 

[ziggy29]

Or put another way: Stocks are risky enough when you're NOT going into debt to buy them and putting your home on the hook for losses. Imagine how risky they are when you *are* doing those things.

Yes, valuations are attractive now in the long term, but don't forget the old saying: The market can stay irrational longer than you can stay solvent. Capitalize that, bold face it and say it three times when it involves mortgaging yourself to the hilt in order to buy.

 

[W2R]

No, no, a thousand times no!!

If you had decided to invest HELOC money, you would then have had monthly payments due on that principal. So, I would suggest that each month you invest THAT money since you won't have to make any payments.

 

[ER_Hopeful]

DOW is up 917 pts as we speak, Wish I had more to invest last week(this is what drove me to the idea). Gotta stop watching the finance site.

 

[Gotadimple]

DOW is up 917 pts as we speak, Wish I had more to invest last week(this is what drove me to the idea). Gotta stop watching the finance site.

The Dow is not the entire market, and one shouldn't make decisions about what to do on the basis of an index of 30 stocks. I wish you well in future investments, but PLEASE, PLEASE, PLEASE, understand what the indices cover before making investment decisions.

-- Rita

 

[JustCurious]

Rita, I agree with you. I cringe everytime I hear someone refer to the Dow Jones Industrial Average as "the market."

 

[lazygood4nothinbum]

DOW is up 917 pts as we speak, Wish I had more to invest last week(this is what drove me to the idea). Gotta stop watching the finance site.

nobel prize winner paul krugman to jim lehrer on today's steep rise "the market does what the market does...the market doesn't necessarily understand what's happening."

 

[45th Birthday]

I was just thinking about the 'Pay off the House threads'. I wonder how many of those in the 'keep a large mortgage' and invest in stocks are feeling now. More to the point I wonder how their wives feel! Especially if there homes or under water!

I have been keeping mortgages on first and second homes = $1.1 million (which have only a small negative carry) with the thought that this represents an option to buy the market if it were to go down big.

It has gone down bigger than I imagined, yet I still can't pull the trigger. I probably will if we drop 10% from 10/10/08 lows, but if I don't, I know I need to take that money (in muni bonds now) and pay off the mortgages.

 

[cashflo2u2]

I stopped taking the needed monthly distributions out of my portfolio a while back and used my HELOC instead. Maybe that was the same thing and rather stupid. No principal payments on a line of credit and I only need to pay the interest which is prime minus 1 on my line.