This is an interesting intellectual exercise.
Is the lender offering this $1,000,000 loan with no collateral? Suppose my $200,000 house is collateral (so it's basically a negative LTV loan; and let's assume the price of the house is fixed)...Bear markets occur routinely in the stock market, perhaps every 3-4 years. So I can expect to be under water--perhaps wayyy under water--at some point in the next four years if I put the money 100% into stocks.
Would the lender that so generously gave me this $1,000,000 suddenly decide to call my loan in a bear market, with my stocks at $680,000, leaving me to sell my house and beg friends/family for the extra $120,000 to make the lender whole at that point? I recognize that Dave Ramsey is a bogeyman in the DNPYM club, but I think there is still quite a bit of risk in the scenario you're describing, much more than in the situation most of us are in here with mortgages that are 60%-80% of the value of our properties.
So really, I ought to
It's a very real example DR uses to try to convince people why they shouldn't carry any debt.
In this particular, hypothetical case, the bank would
never call the loan due. I'd owe $20,000/year in interest, or $1,667/month. In exchange I'd have $1MM to do with as I pleased.
The idea (as I understand it) is to make people feel uncomfortable at the idea of paying $1,667 every single month, and in effect bring them to the conclusion that they must get rid of all debt now, regardless of the rate or its fixed (not indexed to inflation) status. The interest payment is supposed to feel like a weight around your neck, while one is told to ignore the massive asset because you're reminded of the weight every single month. In this thought exercise it aways came back to "but you'd be paying over a thousand dollars every single month!!!"
Of course the counter-argument is that one could simply rely on the gains from that $1MM to more than pay off the interest. A 2% WR is in crazy-conservative territory, particularly if one doesn't index it to inflation. There's never been a 30year period where that wouldn't result in having more money, and under the majority of scenarios you'd have a ton more money. Even the worst 30 year period would have you more than doubling the initial $1MM. If even that were too 'risky' for you one could put the money into 10year US treasury bonds and still come out (slightly) ahead.
ETA: I was curious about the effects of NOT adjusting for inflation with a
constant (not adjusted for inflation) withdraw rate, so I monkeyed a bit with cFireSIM - turns out there has never been a 40 year period when a 4% WR failed if one does NOT index (increase) distributions with inflation each year. Your purchasing power would steadily erode, but in this absurd hypotthetical interest-only loan one could pay off the interest and have an additional $20k/year to do with as he or she pleased in perpetuity. Man, i wish this actually existed...