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Author: yobria Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76395  
Subject: Re: Leveraging Equity Date: 5/20/2004 1:21 AM
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That said, we're thinking of pulling out some of the equity in the house and dumping it into the market

You sound like you're investing without an asset allocation plan.

Sit down and decide how much of your total wealth you'd like in theory to have in real estate, stocks, fixed income, etc. to meet your risk/return/diversification goals. Then adjust your situation automatically when new events occur (like a home inheritence) based on the plan.

From a purely mathematical standpoint, you'll switch from home equity to stocks when you expect stock returns to be greater than your mortgage interest savings, net of taxes and other costs. Before adjusting for risk, you might expect to do modestly better in the stock market. But the savings from your mortgage payment is risk free, whereas your stock investment could be worth 50% of your original investment in 8-10 years.

You don't know which is better, hence the need for a diversified plan.

Nick
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