Pay cash for a home, get a reverse mortgage, and buy stock
I think you're missing a couple of things. First - why do you think its a reverse mortgage? More likely than not its a regular mortgage - home equity loan. If so, if they expect the stock market to rise significantly more than the amount of interest they pay on the loan - then its a totally sensible course of action. Second - the purchase in cash only to take out a loan later can definitely be a sensible way to do things. For example, if the seller wants to close fast, or if there are competing offers where not having a contingency is the tipping point. Another reason might be purchasing in an entity name (for example holding the title as an LLC), and in this case it is easier to get a loan if you already have the house, since the banks see the owner's actual commitment and not just promises.
Yes, a mortgage is debt.  It's unique in that you have a house which should be worth far more than the mortgage. After the mortgage crisis, many found their homes under water i.e. worth less than the mortgage.  The word debt is a simple noun for money owed, it carries no judgement or negative connotation except when it's used to buy short lived items with money one doesn't have.  Aside from my mortgage, I get a monthly credit card bill which I pay in full. That's debt too, only it carried no interest and rewards me with 2% cash back. Many people would avoid this as it's still debt. you are discounting the cash used, the discount rate for cash should be whatever you determine is your risk premium over the risk free rate not the equity growth rate. if equity growth rate is above your determined required return the equity investment is wealth destroying and if it is above that then it is wealth increasing.   The difficulty I see is that the scenario is all wrong, what you are really after is a rent vs buy decision. Do I take this money and rent a place or do I buy a house? In either case you could invest the remainder after paying your rent/mortgage in the equity market no?  So what really matters is the difference in cost between renting and buying.   Let  (EGR)=equity growth rate  Rent = rent M = Mortgage payment  I = income  HA =  home value appreciation  Now the question is is renting or buying a better decision two scenarios, renting first  PMT =(I - rent)  I/y = (EGR)  N =Time horizon in years  FV= Gain from cf left after paying rent    then discount to present day at your required rate of return to find present value  now scenario for buying, this is more complicated because you are investing two different cf streams at different rates and have to calculate both and add them together.  1) CF 1 the mortgage payments buy you equity in the house which appreciates (hopefully) but can be extremely volatile. This is the cf stream scenario one doesnt have, when renting the rent payments poof disappear forever and you earn nothing on them 2) The income left after mortgage payment which can be invested at the market rate measured the same way as above. **This is extremely simplistic and doesnt take into account expected maintenance, property taxes and other costs intrinsic to the investment. It also doesnt take into account the lost down payment setting you well behind the renter.   TL DR: It is complicated but you determine the required return(discount rate) based on the perceived risk of the investment and your particular views  and it doesnt matter what expected growth rates are since any investment with an expected growth rate below your required rate is wealth destroying since you are paying for something which returns cash flows too small for its risk level. If you use growth rates as discount rates then all your investments will net to zero Other people have belabored the point that you will get a better rate on a 15 year mortgage, typically around 1.25 % lower. The lower rate makes the 15 year mortgage financially wiser than paying a 30 year mortgage off in 15 years.  So go with the 15 year if your income is stable, you will never lose your job, your appliances never break, your vehicles never need major repairs, the pipes in your house never burst, you and your spouse never get sick, and you have no kids. Or if you do have kids, they happen to have good eyesight, straight teeth, they have no aspirations for college, don't play any expensive sports, and they will never ask for help paying the rent when they get older and move out.  But if any of those things are likely possibilities, the 30 year mortgage would give you some flexibility to cover short term cash shortages by reverting to your normal 30 year payment for a month or two. Now, the financially wise may balk at this because you are supposed to have enough cash in reserves to cover stuff like this, and that is good advice. But how many people struggle to maintain those reserves when they buy a new house?  Consider putting together spreadsheet and calculating the interest cost difference between the two strategies. How much more will the 30 year mortgage cost you in interest if you pay it off in 15 years? That amount equates to the cost of an insurance policy for dealing with an occasional cash shortage. Do you want to pay thousands in extra interest for that insurance? (it is pretty pricey insurance) One strategy would be to go with the 30 year now, make the extra principal payments to keep you on a 15 year schedule, see how life goes, and refinance to a 15 year mortgage after a couple years if everything goes well and your cash reserves are strong. Unfortunately, rates are likely to rise over the next couple years, which makes this strategy less attractive. If at all possible, go with the 15 year so you lock in these near historic low rates. Consider buying less house or dropping back to the 30 year if you are worried that your cash reserves won't be able to handle life's little surprises. As a general rule, diversification means carrying sufficient amounts in cash equivalents, stocks, bonds, and real estate.   An emergency fund should have six months income (conservative) or expenses (less conservative) in some kind of cash equivalent (like a savings account).  As you approach retirement, that number should increase.  At retirement, it should be something like five years of expenses.  At that time, it is no longer an emergency fund, it's your everyday expenses.  You can use a pension or social security to offset your effective monthly expenses for the purpose of that fund.  You should five years net expenses after income in cash equivalents after retirement.   The normal diversification ratio for stocks, bonds, and real estate is something like 60% stocks, 20% bonds, and 20% real estate.  You can count the equity in your house as part of the real estate share.  For most people, the house will be sufficient diversification into real estate.   That said, you should not buy a second home as an investment.  Buy the second home if you can afford it and if it makes you happy.  Then consider if you want to keep your first home as an investment or just sell it now.   Look at your overall ownership to determine if you are overweighted into real estate.  Your primary house is not an investment, but it is an ownership.  If 90% of your net worth is real estate, then you are probably underinvested in securities like stocks and bonds.  50% should probably be an upper bound, and 20% real estate would be more diversified.   If your 401k has an employer match, you should almost certainly put enough in it to get the full match.   I prefer a ratio of 70-75% stocks to 25-30% bonds at all ages.  This matches the overall market diversification.  Rebalance to stay in that range regularly, possibly by investing in the underweight security.  Adding real estate to that, my preference would be for real estate to be roughly a quarter of the value of securities.  So around 60% stocks, 20% bonds, and 20% real estate.  A 50% share for real estate is more aggressive but can work.   Along with a house or rental properties, another option for increasing the real estate share is a Real Estate Investment Trust (REIT).  These are essentially a mutual fund for real estate.  This takes you out of the business of actively managing properties.   If you really want to manage rentals, make sure that you list all the expenses.  These include:   Also be careful that you are able to handle it if things change.  Perhaps today there is a tremendous shortage of rental properties and the vacancy rate is close to zero.  What happens in a few years when new construction provides more slack?   Some kinds of maintenance can't be done with tenants.  Also, some kinds of maintenance will scare away new tenants.  So just as you are paying out a large amount of money, you also aren't getting rent.  You need to be able to handle the loss of income and the large expense at the same time.   Don't forget the sales value of your current house.  Perhaps you bought when houses were cheaper.  Maybe you'd be better off taking the current equity that you have in that house and putting it into your new house's mortgage.  Yes, the old mortgage payment may be lower than the rent you could get, but the rent over the next thirty years might be less than what you could get for the house if you sold it.  Are you better off with minimal equity in two houses or good equity with one house?   I would feel better about this purchase if you were saying that you were doing this in addition to your 401k.  Doing this instead of your 401k seems sketchy to me.  What will you do if there is another housing crash?  With a little bad luck, you could end up underwater on two mortgages and unable to make payments.  Or perhaps not underwater on the current house, but not getting much back on a sale either.   All that said, maybe it's a good deal.  You have more information about it than we do.  Just...be careful. The best strategy? Skip the loan. Find a way to invest for a low starting amount via a retirement account (such as a 401K or IRA in the United States) or non-retirement account. Use this money to buy individual stocks or funds. Every month put money from your regular income into this investment account. Then buy more stocks or sell if the conditions change based on what the market is doing, not to meet a loan payment. This helps you because if the price fluctuates you will buy more shares if the price is down; and you will buy fewer shares when the price is up. It also allows you to skip worrying about how to repay the loan. It also means that you not have to pull more money out of savings to make the final loan payments if it doesn't make as much money as you plan. Regarding your math. This is a better understanding of the money flow than the earlier question. No, you can't do this indefinitely. For one, you can't just take money out as home equity with no strings attached. The cash out is done as a loan (often a HELOC) or second mortgage and you have to make payments. The lender will always make sure you are able to afford the payments. At some point, you won't qualify for the loan because of insufficient income or too many previous liens on the property. While home values often go up, there's no guarantee. And your examples are more than a bit optimistic. I'm normally not a fan of partitioning investment money into buckets but your case may be the clearest case for it I've seen in awhile.  Your income and saving is good and you have two clearly defined goals of retirement saving and saving for a house each with very different time frames ~30 years and 3-5 years respectively. For medium term money, like saving for a house, just building up cash is not actually a bad idea. This minimizes the chance that a market crash will happen at the same time you need to withdraw the money.  However, given you have the means to take more risk a generally smarter scheme would be to invest much of the money in a broad liquid bond funds with a somewhat lower percentage in stocks and then reduce the amount of stock each year as you get closer even moving some into cash.  This gives reasonable positive expected return while lowering the risk of having to sell during a crisis as the time to purchase gets shorter and shorter. The retirement money should be invested for the long term as usual.  A majority in low-fee index stock funds/etfs is the standard advice for good reason. Your best bet is to talk with a banker about your specific plans.   One of the causes of the housing crash was an 80/20 loan.  There you would get a first for 80% of the value of a home and 20% on a HELOC for the rest.  This would help the buyer avoid PMI.  Editorially, the reason this was popular was because the buyer could not afford the home with the PMI and did not have a down payment.  They were simply cutting things too close. Could you find a banker willing to do something like this, I bet you could. In your case it seems like you are attempting to increase the value of your home by using money to do an improvement so the situation is better.  However, sizable improvements rarely return 100% or more on investments.  Typically, I would think, the bank would want you to have some money invested too.  So if you wanted to put in a pool, a smart banker would have you put in about 60% of the costs as pools typically have a 40% ROI.   However, I bet you can find a banker that would loan you 100%. You don't seem to be looking for advice on making a smart money decision, and it is difficult to render a verdict as very little detail is supplied about your specific situation. However, while certain decisions might look very profitable on paper, they rarely take into consideration risk.