Will Cashing Out Pay Off?

Dave is trying to teach Mike a lesson about borrowing to invest, but he may have already done it.

QUESTION: Mike has a $50,000 equity line mortgage and makes $130,000. He wants to know if he should use his company’s stock options to pay off this mortgage. Dave explains why single stocks are too much of a risk.

ANSWER: If I gave you $10,000, would you buy stock options or pay down the mortgage? I don’t like single stocks because they have too much risk. The stock market will pretty much go up over time, but I’m not sure if your stock will. If you want to play with it a little bit, that’s fine. I would not borrow on my home to invest in stock options that may or may not be worth something, and in effect that’s what you’ve done. I would cash it out and put it on there, and then work my way through the rest of the equity line.