If it makes sense to invest in index funds instead of paying my 3.5% mortgage, doesn’t it make sense to take out loans at the same rate to buy those index funds?
PF’s “standard advice” wavers a bit in this regard but most people seem to agree that it’s worthwhile to continue investing in the stock market while you have a mortgage if you have a “good rate” (<5%~). The idea being that passive index investing should return well over that rate over a long period of time.
However, PF also heavily recommends against investing with other people’s money (IE, taking out a loan to invest). Given that you can find margin rates below current mortgage rates, it seems pretty easy to implement this if you wanted to. If you’re willing to put $100k into the S&P500 instead of your home loan, what’s the difference in risk between doing that and taking out a loan for $100k and putting it into the S&P500? The entire modern idea of saving for retirement (via IRAs, 401ks, etc) seems contingent on the idea that the market will continue to rise at rates similar to how it has in the past.
I understand that the leverage provided by a mortgage is an incredible opportunity to “get ahead” by enjoying the full value of a home without paying the full opportunity cost, but doesn’t investing on margin get you the same thing?
Edit: To be clear, I understand that leverage can be a dangerous tool in any situation and that over-leverage is a thing. However, isn’t it possible to utilize leverage without being over-leveraged? For example, if you have an account with $100,000 in the S&P500 and choose to borrow $10,000 more at a reasonable rate to invest in the S&P500, how would that strategy fare over a long period of time?