I don't understand why people want to take shortcuts.
People want to retire sooner rather than later. If you are the kind of person that has optimized your spending and your earning it's not a stretch to want to use the cheap credit available to accelerate your investment performance. If you are not using margin loans and can't be subject to a margin call then the same mechanism that will make you very rich the way you suggest will make you very rich faster with some leverage.
As I said before, the issue here is that by pulling out a loan and lump sum investing, you are subjecting yourself to more risk by going all-in in a specific time period.
Imagine one did this in 2001 or 2007.
The MMM/ERE crowd is already taking more risk vs a common "save 15% and dump it in index funds for 40 years" because of the much shorter working time, I don't find it wise at all to further augment this risk.
I'm not suggesting everyone should run out and invest on credit, but I do think a rational analysis makes sense not just some fearful "one time I read a thread on Boggleheads and it was bad VERY BAD" reactionary trope.
If we aren't going be rational about our investment decisions than stock picking and market timing have some compelling "stories" behind them.
I'm actually arguing about the "rational" part, as I believe it's not rational at all.
Personally I've got a house worth $400K-$500K on a sub 2% mortgage. If had sufficient equity I'd pull out $200K and deploy it into the market.
I hope you don't live in Toronto or Vancouver (or maybe even Montreal, not sure as I know nothing about real estate there) or it would be a spectacularly bad idea considering the real estate bubble you're experiencing there.
Until I pay off the house I still have to make the same payments each month. Whether it's $100K left to go or $300K is irrelevant. I might as well have that money working for me during my accumulation phase where I don't need investment $$ to live off of.
If $200k is irrelevant to you, then you are right.
Otherwise no, it's actually $200k relevant.
You all seem to be talking past each other.
Of course, putting all your money in at once is the most rational thing to do. And assuming no margin calls, it is what people should rationally do. The difficulty comes with imagining worst-case scenarios that are often smoothed out by what becomes the equivalent of dollar cost averaging (when people invest the extra money they have each pay period, etc.).
The easiest way to see this is the following. Imagine rolling over $200k in a 401(k) from your old employer to a Vanguard IRA. The previous investments are sold, they are transferred to Vanguard, and they await instructions. Do you (1) immediately put them all in your Vanguard mutual funds, or do you (2) slowly dribble them in over time because you never know what the market is going to do.
Almost everyone here would say (1). The money was already in the market, so just put it back there. But that answer is exactly the same as borrowing the $200k, assuming you can carry the costs. The market could tank the next day, but for the same reason you don't arbitrarily pull your $200k out of the market because of fear of a worst-case scenario (also known as market timing), you don't withhold putting your $200k back into the market after completing your roll over.
The margin example seems scarier because it's not "your" money yet. But if it's money that you can afford to earn without getting a margin call, the analysis is the same. Rationally, you should do it because you should always put money in at the first possible circumstance.
As a reminder, that's always the answer because (1) the market generally goes up, and (2) we don't know whether it's going to up or down at any particular time, so given that, you should always invest as early as possible.
The downside that people imagine is borrowing $200k, the market tanks, then you spend the next 5 years earning that money back. But that's logically no different whatsoever than earning the $200k after 5 years of work, putting it in the market, and having it immediately tank. Yes, but what if you put in the $200k along the way paycheck by paycheck? In that case, you probably got the benefit of market growth along the way, but if so, you also would have been better investing the $200k on the first possible day (i.e., the loan situation).
While that Boglehead thread was fascinating for how badly it turned out, the approach was rationally correct. Two things derailed it. First, he ended up picking the worst possible time in the market to do it. Second, he couldn't carry the costs of the loan, and thus got margin calls that forced him to sell. If he had been able to avoid the latter, and keep the money in, he would have made money in the market (the growth since 2007 would have likely offset the cost of the margin loan). And that's starting at one of the worst times in history.
So the next time someone asks when they should invest a windfall that they just received ($10K bonus, $20k from an inheritance, etc.), the answer should be--and almost invariably is--put it in right away. Because you can't market time. And that's true even if the market could be a day away from a massive collapse. That's the risk that creates the premium that allows us all to make money in the market.
P.S. Notwithstanding all of the above, I have a HELOC available at 3% interest that I won't invest in the market. First, because I don't want to commit to working long enough to pay it back. Second, and more importantly, because the fact that I don't have debt is what allows me to invest "rationally" in the market and not take action based on emotion. I would be much more tempted to try to time the market and act irrationally if the money to pay my house were hanging in the balance, even though I know that it would be irrational to do so. So I took the lower return of a paid off house and no debts as the cost of allowing me to make rational investment decisions going forward. Human behavior is tough to overcome.