Should I dip into my HELOC to buy?

[friar1610]

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

I couldn't agree more. I don't know why the press doesn't use the S&P 500 index or, to give a better snapshot of the entire market, the Wilshire 5000, when it's reporting the day's market results.

 

[tsturbo]

Oh what the hell, chances are if you invest, loose and cannot pay back your HELOC, the government will bail you out. GO FOR IT!.......NOT. Are u nuts?

 

[ERD50]

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

I think it depends on more than just simply 'borrowing against the house'. That may be far too risky for most, but depending on the rest of the Net Worth picture, and the risk level of other assets, may not be so crazy.

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

Very good way to look at it, IMO.

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!

Well, if they were gloating when the market was up, then yes, kick 'em when they're down - they deserve it! But, if they are looking at the long term and understand the risk, the short term is not really the issue. With your logic, no one should invest in stocks ever, because sometimes they do worse than a MM. Then how would they feel?

-ERD50

 

[Frugality_of_Apathy]

Well, if they were gloating when the market was up, then yes, kick 'em when they're down - they deserve it! But, if they are looking at the long term and understand the risk, the short term is not really the issue. With your logic, no one should invest in stocks ever, because sometimes they do worse than a MM. Then how would they feel?

-ERD50

There's always the possibility that "it's different this time." If people get spooked and decide to not take out all the credit they can and actually live within their means, then there's a good possibility it will be years (like 20 of them) before we reach the same level we were at when money grew on trees.

If the fed keeps the interest rate low this will be a long recession indeed.

 

[Rustic23]

With your logic, no one should invest in stocks ever, because sometimes they do worse than a MM. Then how would they feel?

-ERD50

No, that is not what I mean. Most people invest to secure the future. Home ownership is part of that security. When the market is going up, people look at all that 'opportunity lossed'' by having money tied up in their home. However, when the market drops 5,000 points in a week, that paid off home looks real good.

So, it's not weather you invest in stocks or not, it is what choices you have to spend your money on, and what lets you sleep at night. Each and everyone of us is different.

For me, I'm with ReWahoo. I have a small mortgage, which could be paid off by investments. It is just the right amount of risk for me to sleep.

 

[FUEGO]

I'd say leverage the house to the hilt. Dump it all into something with some volatility and hope for the best. Worst case, the government will probably come in and bail you out and modify your mortgage terms. And there's always bankruptcy! You're young, go for it!

(this is only partially sarcasm)

 

[Helena]

Should I dip into my HELOC to buy?

OMG !!

It is the 1920s all over again !!

 

[Marquette]

Here's a good mental exercise for you. You posted this on 10-13. SPY was $101.35. Let's say you got in with $20k. SPY is currently at $89.13.

We both know you'd be in it for the long-term, but think through those numbers and assess how you'd truly feel if you (or your wife) were looking at the market right now. Depending on how the exercise strikes you, it could be an indicator that staying out is a good idea... or it could be an indicator that you're fine to go forward with a more aggressive allocation.

 

[ERD50]

No, that is not what I mean. Most people invest to secure the future. Home ownership is part of that security. When the market is going up, people look at all that 'opportunity lossed'' by having money tied up in their home. However, when the market drops 5,000 points in a week, that paid off home looks real good.

So, it's not weather you invest in stocks or not, it is what choices you have to spend your money on, and what lets you sleep at night. Each and everyone of us is different.

For me, I'm with ReWahoo. I have a small mortgage, which could be paid off by investments. It is just the right amount of risk for me to sleep.

It all boils down to Asset Allocation. Since the OP did not really give enough info to know how 'dipping into the HELOC' would affect his AA, or what his target AA is, we don't really have an answer. He only mentioned taking 10-10K of a HELOC towards 'some funds'. What if that HELOC is only debt? What if he already has a very conservative AA?

Someone else, also not giving enough info, could say they decided to rebalance 10% of their fixed and re-allocate it to EQ, and people would probably say that was fine. But, depending on the numbers, that may expose them to far more risk that what the OP mentioned.

As soon as someone sees 'mortgage the house to buy stocks' they go nuts. But, it depends. You have to look at the bigger picture.

-ERD50

 

[Rustic23]

agreed

 

[JPatrick]

I think now is a great time to begin slipping back into the market, but it is never a good time to use borrowed cash.
Find another source of cash and use these gut wrenching down days to average in. A total stock market fund would be nice for openers.

 

[chinaco]

Why leverage yourself? It just increases your risk.

 

[Donzo]

You would have some major heuvos if you did that! I would not be able to sleep at night.
House good - no house bad.......

 

[Animorph]

Now's the time to use the HELOC if ever there was one. I've used a little bit of the HELOC to increase our portfolio, keeping the AA in balance. I just finished putting all my spare cash into the market as of 10/10. The HELOC goes in in three steps if the market continues down from there. I still have 2 years of cash to hopefully carry us through a bottom to a point where stocks are higher than 10/10.

I did this once before, getting into the market all at once a few weeks before 9/11. It took a while, but I did end up at break-even (including interest payments) before the interest rate looked too high. So even if the market goes down more after you invest it's not that bad.

Better now than 10/17/07!

I would say what is your personal rate of return for the last five to 10 years or so and ask you to compare it to the HELOC (and to assume interest rates will go up on the HELOC), but maybe that doesn't argue in my favor. However, my personal rate of return for 2003-2007 was about 20%, and that should be somewhat like what we'll see in the future.

I'm doing this (and not paying off my mortgage) because I expect to make better than 6% return on my investments during the course of the loans. And with the market at these levels, I think it is less risky than it was in 2007.

 

[Enuff2Eat]

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.

Those who took the least risk will always be Poor.
Those who took the dump risk will always be Broke.
Those who took no risk will always Regret.
and last,
Those who took the wise risk will always be the Foundation of America.


pick your choice

 

[rayvt]

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.

I am one of those folks. I'm feeling okay, because I know that the market pays off big time in the long term even though there are huge fluctuations in the short term. The lifetime of a mortgage is 20-30 years. Guess what---20 or 30 years is long term.

More to the point I wonder how their wives feel! Especially if there homes or under water!

My wives feel just fine about it. (At least until they find out about one another. )
My wife had only one question, "Can we still make the mortgage payments? If we can, what difference does it make if the stock market is down?"

The house being underwater or not has no bearing. The house appreciates or depreciates regardless of whether or not there is a mortgage on it.

 

[rayvt]

Aubrey McClendon a formerly very rich and a very sharp gas finder got sold out of his huge position 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?

He bought the stock on margin. A margin loan can be called at any time, and it will definitely get called if the value of the collateral drops.

A first mortgage cannot be called. Nor can it be called if the value of collateral (the house) drops.

So what happened to him with his CHK stock purchase can't happen if you buy a stock with money from a first mortgage secured on your house.

Note, however, that a HELOC *can* get called and probably *will* be called if the house drops in value. As far as I'm concerned, any callable loan is insanely risky.

 

[Rustic23]

Rayvt
Your wife is considerably more understanding than mine. If I mortgaged the house and stuck it in the market, lost 40 to 50 % of it, had no clue when it would come back, if it comes back in my life time, she would be pi$$ to say the least. The house to her is a security blanket. In fact, we refer to it as 'her' house. A nest egg that goes from 1M to 600k may not provide the funds to 'pay the mortgage' along with other retired expenses.

Now if you are in your 20's, looking at retiring in you 50's, maybe. However it seems most on hear are closer to retirement than 20 or 30 years.

That's why I also said, 'So, it's not weather you invest in stocks or not, it is what choices you have to spend your money on, and what lets you sleep at night. Each and everyone of us is different. '

 

[ERD50]

Rayvt
Your wife is considerably more understanding than mine. If I mortgaged the house and stuck it in the market, lost 40 to 50 % of it, ...

yes, but the OP is asking AFTER the market has already taken a historically large haircut.

I don't have an opinion one way or the other, because we don't have enough info from the OP. And it would still just be my opinion. But I wouldn't automatically rule it out as crazy.

-ERD50

 

[rayvt]

Rayvt
Your wife is considerably more understanding than mine. If I mortgaged the house and stuck it in the market, ...

Well, first off, I never mortgaged the house and put that money into the market. The most drastic I ever did was to refinance the house (at a lower rate) and take enough cash-out so that the new payment was the same as the old payment. IIRC, the cash back was around $20k. So we didn't really have much change in our risk exposure, since the payment didn't go up. That 20K was the initial seed that resulted in us being able to retire at age 58.

I got the first taste of my my wife's risk tolerance when we were engaged. I was a private pilot, and I took her up for a ride one weekend. She did the white-knuckled thing as soon as we lifted off, and when we landed, she said, "I'm fine. I just kept telling myself over and over---- if we die, at least we'll go together."
Subsequently, she says, "When we started we had nothing and we survived okay, so the worst thing that can happen is we fall back to where we started. You can't go below nothing."

That was 42 years ago. Since then, she only cares about 2 questions:
1) Can we pay our bills?
and
2) Do we have enough money for a comfortable life?

As long as the answers are "Yes", then everything is fine with her.

She said recently that she believes in division of labor in a marriage. My job is to make & invest the money. Her job is to spend it.

She just wants me to do one thing. Tell her when/if we need to cut back on spending. With the recent market meltdown she told me, "Let me know if I need to stop buying stuff. And let me know if we need to stop going on cruises."

 

[thefed]

Another vote for no. I'd rather be building up cash reserves in your shoes.

I keep my cash in a lockbox. Why have you decided to keep yours in your shoes? I dont get it....