Don't Bet the House on a Market Recovery

With stocks down (the Standard & Poor's 500-stock index is about 11.2% lower since Oct. 1 of last year) and loan rates below 6%, some bold and opportunistic investors may feel tempted to dip into their home equity in order to invest in the stock market.

After all, many folks agree that the stock market does well recovering from a recession.

But what if the return on your investment isn't enough to cover the cost of the mortgage or home equity loan? In that case, you will lose money -- and you could even lose your home.

Most Americans at one time or another have borrowed money in order to buy an asset. A mortgage is a straightforward example of this type of investing, where you borrow money from a lender to make a low-risk investment in a home.

But you can't just go out and buy any house; regulations exist to prevent people from borrowing more than they should. (Blurring these rules resulted in the current subprime mortgage mess.)

With stocks, however, there is nothing to stop you as an individual from taking equity out of a home and investing it in securities -- except, perhaps, good sense.

The National Association of Securities Dealers (now the Financial Industry Regulatory Authority) issued a warning to its regulated firms back in 2004 that it was becoming increasingly concerned about homeowners using home equity to buy securities. It cited low interest rates, expected growth in the market and high home prices as key contributors to the growing trend.