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If my house is paid for I can live in it without fear of anyone taking it away from me.

Well, the local government can take it , if you don't pay your taxes. For the following comparison, lets assume this won't happen.

If my house is not paid for, but I have money in the stock market and ALL my investments lose money (the value in my house is down as well as my investments) I can still live in my house. Can I still afford my investments? Perhaps.

Now let's assume I lose my job. I can still live in my house. Can I still afford my investments?

If I have a mortgage and investments and they both decrease in value and I lose my job, do I have to worry about losing my house? Yes, I do.

It's all in the risk/reward, as stated before.

I don't like to gamble with the possibility of living on the streets, especially when the market is acting like it has lately, but I know others that aren't worried......yet.


I fully understand (and mostly agree with) your sentiment. BUT ... liquidity is a major issue in calculating the probability of surviving an adverse event as described above.

There are 2 scenarios:

Scenario 1 - House paid off -

OK, so you had a mortgage of $150k and a net worth of $300k. You decided to pay off the mortgage. Now you have no mortgage and $150k in net worth, mostly invested in stocks, BUT the Nasdaq went down 63% and your portfolio went down about 50%. Now you have a portfolio of $75k, of which $15k is liquid and can be used for expenses when you get laid off. Your minimum expenses are $3k/month, you can survive for 5 months.

Scenario 2 - Keep the mortgage -

Same mortgage of $150k, payment about $1k/month. Same net worth of $300k. Now, you would like to pay off the mortgage, but would prefer to have liquidity in case some sort of crisis comes up. So, you keep $150k in cash, perhaps in a tax-free money market fund, and the other $150k in stocks. Whoops, Nasdaq goes down 63%, your portfolio goes down 50%, down to $75k, and you get laid off. Your minimum expenses are $4k/month (same as the guy above plus the mortgage payment). You can survive for 37 months using that $150k in the tax free money market fund.

Which scenario is more conservative ? Which is safer ?
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