Should You Pay Off Your Mortgage Early or Invest in Stocks?
Summary
- Market valuations (specifically the CAPE ratio) are ineffective market timing indicators; historical data shows high valuations often precede significant multi-year rallies (e.g., post-2017).
- A weakening US Dollar creates a regime change that flips market leadership: it acts as a headwind for foreign investors holding US assets but a tailwind for International Equities and Gold.
- Mortgage payoff math suggests a "no man's land" between 4.5% and 7% rates where the decision is psychological rather than purely mathematical; however, maintaining liquidity in stocks is preferred over trapping equity in illiquid real estate.
- Home equity should be calculated in net worth despite its illiquidity, as it provides borrowing power (HELOCs) and future down payment capital, distinct from "paper wealth."
Trade Ideas
Ben argues that high valuations are not a valid reason to pause Dollar Cost Averaging (DCA). He cites 2017 when the CAPE ratio hit "twice in history" highs, yet the S&P 500 subsequently rallied 230%. Investors fearing a crash due to P/E expansion are misinterpreting the metric. Valuations set long-term expectations but fail as timing signals. Therefore, broadly diversified US equity exposure should be maintained regardless of current premium pricing. Long US Large Cap indices via DCA. A genuine earnings recession or structural shift in the economy that compresses multiples independent of sentiment.
Ben notes that in "weak dollar regimes," International stocks tend to outperform US stocks significantly. He explicitly adds, "Gold outperforms by a ton when the dollar is down." The current environment (referenced by the viewer's currency drag and Ben's charts) suggests a shifting currency regime. If the USD continues to decline or remains weak, the multi-year tailwind for US stocks reverses, favoring assets denominated in foreign currencies and hard assets like Gold. Long International Developed Markets and Gold as a hedge against USD devaluation. A resurgence in the US Dollar (DXY) due to a "flight to safety" event or hawkish Fed policy relative to other central banks.
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