But let's say you're young and you do have the taxable wealth. You're 30, a good investor, you have $100K in a taxable account, $100K in home equity, and a $100K 5% mortgage. Should you pull out the home equity and invest it? Historical returns say you should. One thing to be very careful about is the difference between the average returns and their variability. If you plan to pay the mortgage with cash flow from the investment then you are taking a risk. The so-called safe withdrawal rate is 4% (see the Retire Early Home Page discussion board here at the Fool and http://www.retireearlyhomepage.com/ for details). This means that if you need to pay your mortgage from your investment, and take out more than 4%, then you have some chance of depleting the investment before you have paid off the loan. Even so, on average, you will end up coming out ahead. So if you have alternative sources of cash to pay the loan, and are willing to take on some risk, then it may make sense. http://www.retireearlyhomepage.com/ has links to some nice calculators that let you figure out what the risk is based on historical returns. It is geared towards making your retirement nest egg last, but it is a similar question to the mortgage one.
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