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#122 Using a reverse mortgage to rebalance a portfolio



For decades now, the two of you have been very level-headed when it comes to managing your investments, never succumbing to panic when movements in either stock prices or interest rates have made others frantic. With both of you having taken retirement from full time jobs a little under two years ago, you’ve been augmenting your income with part time lectures and consulting gigs (youth leadership is your field). Semi-annually rebalancing your portfolio to keep a conservative mix of stocks and bonds (basically the old 60/40) has become a habit.

Recently, however, with some rather major updates to your home completed and completely paid for, you’ve been turning closer attention to your investments. Your reading and media sources are describing an inverted yield curve, saying this predicts a recession. You’re tempted to rebalance your portfolio in a manner totally different from usual, moving almost all your money into stocks and lightening up on bonds, at least for the next couple of years…

While investment advice is not within the purview of this blog, one long term strategy you might consider is using your housing wealth as a “surrogate” element in your “portfolio”. With a reverse mortgage line of credit, dollars you don’t withdraw would grow at the same rate as the interest being charged on the mortgage balance. While reverse mortgage rates are based on a different standard (LIBOR/CMT) than bonds, the reverse mortgage could “stand in” for the “loaner” element in your owner/loaner portfolio balancing strategy, allowing you to move more heavily into stocks.

A reverse mortgage might very well help restore the “balance” in your investment plan.