No. of Recommendations: 2
"That 8.9% was the WORST 30-year period. Not the average, not the best. The very worst."

Did I miss you cite your source (I'm the Shiller data right, starting in around 1930?)

I think the dataset commonly used is a data set which includes the 1930's, but starts around then, thus providing the 1930's as a nice (low) starting point, but not have the correspondingly depressed ending points in the equation. If I'm wrong on that, please correct. geometric (yearly) returns I think have been ~9.6% in the dataset I'm aware of from Shiller if you take the depression into account. I'm pretty sure the 30yr market return ended 1937 was much less than 8%, but I don't have the data set handy.

Anyway, I would say that given trailing PE valuations *today* are higher (or right at the top) than any (I'm guessing at your data source again) *starting* 30 year date in your data set, I would say the worst case from your data set should likely be set as the high case for anyone going forward. I'd actually bet money on that outcome (30 year returns today for S&P500 <8.9% annual, nominal). If I'm wrong on that bet, it would be due to high inflation which would certainly work well for the mortgage to buy stocks strategy...

The second item that should give anyone pause thinking this strategy in the context of historical stock returns is that given the low rate of income produced by the S&P, it wont' cover your mortgage payments, thus you would have to liquidate the the position slowly each year to make up the shortfall (again, if you are explicitly borrowing and are using the invested funds to directly fund the mortgage - a 4% mortgage payment is >4%, because it's fully amortizing), this will mean then that a true total return calculation (looking at historical data) isn't at all appropriate; you have to assume withdrawals in your equity portfolio so you can't reinvest at the rate of the S&P500; this will increase the dispersions of your actual realized returns (again, even looking at historical data) based on the level and volatility of your investment portfolio, especially in the few beginning years.

I don't think these are minor issues (starting valuation + withdrawals), but I would still bet you make out better in a market investment than 4%... but perhaps not a ton better given the maturity mismatch of the cash flows, on a probability / risk adjusted basis.

Given the risk free rate for 30 year paper (in the US) is now at 2.66%, I don't think my conclusion should be too shocking.

Basically, my 2 cents would be that looking historically at US stock returns staring in 1930 and viewing 30 year periods is not really relevant to someone who is looking to start a carry trade mortgage / stock buy activity at 2016 prices.

Perhaps we (just me?) are all just splitting hairs. I fear inflation, and would considering adding large, long, fixed cost debt that is un-callable for that reason alone...
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