Is the market going to crash? And if so, what should you do about it?

Hello Pete. 

My question is should I take some money out of some investments to pay down some equity in my home for a lower mortgage payment?

I recently read an article that said we could be looking at another recession soon, and warned that the market could take a 75% dip. Between my wife and I we have around 80K invested in ROTHs and other 401K rollovers etc. We also owe approximately 148k on a home that is worth 250k. Currently our payments before escrow is $950, and we have 17 years remaining on a 20 year term of 3.5% interest. My question is would it make sense to help make us be more recession or depression proof to liquidate 30k or so to pay down our principal and REFI to a 15 year? In hopes that it could reduce our payments $200-300 per month.

Thanks again for all your help.

Very Respectively,
Tim

Hey Tim

Thanks for your email.

In 2008, I decided to wipeout my car loan because I felt my money was better spent out of the market, than in the market. The money I used to payoff the $8,000 balance was non-qualified money (non-retirement money). I wasn’t robbing my financial future in any way, by paying off the debt. Fast forward seven years. Although I eliminated the debt, the money I used to eliminate the debt would have increased in value by nearly 70%. I saved a few hundred dollars in interest by using investments to pay off debt, but I lost out on $5,600 of growth.

It’s because of this very idea that I think you should probably NOT liquidate investments to pay down debt. Shaving two years off of your mortgage and making $30k illiquid in the meantime, doesn’t seem like the way to go. You can hold the view that the market is going to tank, but there are better ways to take advantage of that feeling. Here are two:

1. Aggressively pay-down your mortgage with your income, not your assets.

2. Aggressively save money, but let the money accumulate into cash, not investments.

That way if the market does fall, you can buy investments very low, and make a tremendous amount of money. In 2008 I ended up buying a particular stock at $0.20/share. I sold it a couple of years ago at $4.00/share. That’s a HUGE gain that was made possible because I had accumulated cash off to the side to help with buying opportunities.

Pete

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