inbox788,inbox788 wrote: ↑Sun Jan 14, 2018 11:47 pmIt's not investing the whole 300k in the mortgage, just replacing the bonds! I'm making the case for NOT buying the bonds.KlangFool wrote: ↑Sun Jan 14, 2018 10:00 pmWhy would I want to do that? I have a 300K mortgage. I choose to invest that 300K in a 60/40 portfolio because I like the risk-adjusted return of a 60/40 portfolio versus a 3.49% mortgage.inbox788 wrote: ↑Sun Jan 14, 2018 5:58 pmThere are 2 issue at play, changing AA and comparing bond return vs mortgage. You don't have to think about mortgage as a negative bond to improve your situation. Instead of borrowing $300k at 3.49% and investing $180k inequities hoping for 9.67% and $120k in bonds for 3%, just borrow the 180k to invest in 100% equities.KlangFool wrote: ↑Sun Jan 14, 2018 4:59 pmI borrow 300K from my mortgage to be invested in a 60/40 portfolio. And, if and when I pay off my mortgage, I will move 300K from my 60/40 portfolio to pay off the mortgage. Now, some other folks want to think about the negative bond or whatever does not make any sense to me.
You had boxed yourself into a corner by the "negative bond" thinking. Why would you want to do that if it is not useful and profitable for you?
You have a 180k+120k mortgage that you chose to invest 180k in equities and 120k in bonds for a 7% blended return. I just choose to invest in the same 180k equities, but don't take out the mortgage. We have the same risk on the equity side and I'm arguing that the return I get is going to be higher with less risk. firstname.lastname@example.org% + email@example.com% is 7.2%! (I would only do this if the return on the mortgage was higher than the bond)
IMO, 180k borrowed from mortgage and invested in 100% equities is LESS RISKY than 300k borrowed mortgage invested 60/40.
Anyway, you seem to have a hard time with the negative bond thinking, but I hope this illustration helps others who may be more open minded to the idea.
<< IMO, 180k borrowed from mortgage and invested in 100% equities is LESS RISKY than 300k borrowed mortgage invested 60/40.>>
I have a 400K house with a 300K mortgage.
So, it is between
A) 180K 100% stock with 120K mortgage which does not change my mortgage payment unless I recast the loan
B) 300K 60/40 portfolio with the 300K mortgage.
In a recession, the stock crash 50% and the bond stay flat. My annual expense is 60K per year.
For (A), I can only last 90K/60K = 1 1/2 years. For (B), 210K/60K = 3 1/2 years. Please tell me how (A) is less risky? It is not.