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"Which scenario is more conservative ? Which is safer ?"

If you had a 'paid for' house, you could easily get a home equity loan for a considerable portion of the house, worse come to worse.

Now, a smart person would have have just paid down the house...but had at least six months, and probably a couple years of living expense set aside...

Again, it is not one or the other to the exclusion of the other.

What happens if you had put all your eggs into 'tech'?, Teligent, CMGI, Iridium,, and other 'sure winners' - that did drop 99 to 100%....???? now you aren't down 63%, but 99%...

Or what happens if you had put all your money into Nasdaq? Or anything, that could go down 80%, and stay there for five years????

Obviously, for most people, they don't put all their eggs in one basket, but spread the risk. As you pointed out, having a house, but not affording food doesn't do much....

When you have a mortgage, remember who really owns the house....miss 3 or 4 or 5 payments, and the lender will let you know quickly..... and if your house is 'down' by 30 or 50% (and it happened in Dallas in 1984, and Washington DC in 1991), then they sell your house, and you still owe perhaps tens of thousands of bucks to them since your loan was underwater.

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