I just heard a gal who had called in on the Dave Ramsey Show talking about the concept of borrowing money from a home loan/home equity loan as being a bad idea. She had been chastised by her family member for being so brash as to not maximize her dollars to make money on the stock market. She told Dave, “If it was that easy, I figure everybody would be doing it.” This common sense thinking is so rare in the financial world. Dave’s mathematical discussion of the issue also was an interesting discussion.
If you take out a loan at six percent, make twelve percent on the stock market do you ‘make’ six percent on your investment? The answer is no for several reasons. The first reason is that you’ll pay some sort of brokerage fee somewhere, or a trading fee of some sort. Then you pay taxes on that money, the percentage may vary depending on what you have going on in your life, but then another chunk just simply vanishes with inflation. The money that you make could be no money at all or you could lose money. Yes, some people may make money, but will it be enough? Not really. Figure that if you paid off your home mortgage and all debts and then invested heavily in some sort of safe investment with continual amounts of money, with less risk than debt, then you’d come out ahead with greater certainty. If you get into debt, pour your resources into investing but get injured, get fired or get demoted your house payments are wrapped up in an investment that you’ll be penalized for taking out and living off of.
In short: get rid of debt.
