There is volatility in housing prices, but its unlikely that a house that’s a good deal now will be worth 1/3 as much when your mortgage comes up for renewle, which is why you feel comfortable borrowing against it, right?

Similarly with Disney, Coca-Cola or Bank of America. There’s volatility in their prices, but when they’re being offered at a good price (such as BAC right now) its very unlikely they’ll drop to 1/3 their value and trigger a margin call. Conservative investors like me are horny for their dividends. As the price drops, we find it hard to resist buying them (as the dividend yield goes up), this acts as a “parachute” as stock prices drops, dividend buyers start purchasing and prop up the price.

Plus, you don’t have to use all of your margin. If you buy 10% of your stock on margin, you get the benefit of some leverage, with a very tiny increase in risk. Just like a 100% mortgage is risky, maxing out your margin account is risky, but just as a reasonable mortgage is managed risk, reasonable margin buying can also be managed risk.

Your comment about capital gains taxes is a good point. (we don’t have the other write-offs up here in the great white north).

Leverage – you can leverage equities if you are a renter, just don’t do it with riskier stocks – either buy big, safe companies or broad based ETFs.

Inflation – in theory, equities should protect against inflation as well.

Very good post.

Mike