Don’t do it. End of story.
Folks who buy a home today could still be making payments on it in 2075. They’ll be complete slaves to an antiquated banking system.
They’ll have watched their kids grow up and have adult kids of their own – and still owe the bank money on their home loan.
That will be the reality for millions of Americans under the White House’s new 50-year mortgage proposal.
It wants to make buying a home more affordable – an honorable goal. And a longer timeframe does mean lower monthly payments.
But while those payments may feel lighter over the short term, the long-term cost is a lot heavier.
Let’s assume you pay a 6.3% interest rate – slightly above the current 30-year fixed-rate average of 6.2%. And you’re looking to buy a $400,000 home with 10% down…
On a 50-year loan, you’d pay about $825,000 in interest, compared with about $442,000 on a 30-year loan. That’s almost double the interest payments.
Worse, you’re paying down even less in principal in the earlier years of the mortgage. If the value of your home falls, and you need to refinance or sell, you won’t have much equity on your side.
It’s doing what feels easiest today, even if it costs more tomorrow – and that same mindset is showing up everywhere right now, especially in the stock market.
It’s exactly the kind of thing you’d expect in what we here at TradeSmith call a Mega Melt-Up.
In a regular melt-up, markets stop rising rationally and start going vertical. Intense FOMO (fear of missing out) over the short term overrides investors’ awareness of long-term risk.
A Mega Melt-Up is an extreme version – one that happens only when three powerful forces collide:
- A transformative technology: Today, that’s AI. It has investors salivating over potential productivity gains across the economy.
- Easy market access: Free trading apps, fractional shares, and rise of meme-stock trading make it simpler – and more addictive – for retail investors to jump in.
- Abundant credit: Credit is the lifeblood of every boom. Right now, it’s flowing freely.
You can make a lot of money in a melt-up. But every melt-up ends with a meltdown.
It’s crucial you have a risk management plan in place before the music stops. Because no one can predict when the market will peak.
Today, I’ll show you a simple but powerful way to manage your risk.
It’s something I do each year with my own portfolio. And it not only helps you lock in gains on high-flying stocks, but also forces you to buy what’s cheap and out of favor.
First, let’s check in on America’s consumer credit market. It’s not just homeowners taking on more debt. Three other warning signs are flashing red.
Three Credit Warning Signs You Shouldn’t Ignore
Credit-card balances are flagging the first warning.
They now sit above $1.2 trillion – the highest on record – or about $4,700 per adult American. And those balances aren’t cheap. The average interest rate is 21%-22%, according to the Fed.
At those rates, carrying a $5,000 balance can cost you more than $1,000 a year in interest alone. That’s money not going toward savings or investment – it’s going straight to the banks. When so much household cash flow is eaten up by high-interest debt, it’s a sure sign the consumer credit cycle is running hot.
Then look at auto loans. The average new-car payment is nearly $750 a month. And loan terms now average about 69 months – almost six years. Some stretch to seven years… or even a decade.
And delinquencies are rising. Studies show serious delinquencies (90+ days late) have doubled over the past decade.
As with longer home loans, these extended auto loans lower your monthly payment today but increase your total interest costs. This makes you more vulnerable if anything in your financial life changes.
And this trend doesn’t stop with big-ticket loans for cars and homes.
People are using Buy Now, Pay Later (BNPL) plans for everyday purchases – clothes, gas, even groceries. Surveys show that roughly one in four BNPL users now relies on these services for basic living expenses.
When credit becomes a way to pay for necessities, it’s another clear late credit cycle warning.
Together, these data points tell the same story: We’re solving today’s problems by borrowing from tomorrow.
I’m not saying the melt-up is going to meltdown tomorrow. But it’s wise to prepare now, while the going is still good. What’s critical now is that you have a plan.
The time to fix a roof isn’t during a storm – it’s when the sun is still shining.
And the simplest way to protect yourself in a melt-up isn’t to try to predict the top – it’s to rebalance your portfolio regularly.
This Simple Habit Keeps Emotions Out of Investing
Rebalancing means you periodically reset your portfolio back to its intended shape.
It’s a simple, almost mechanical, habit that keeps greed and fear from running the show.
Let’s say you started the year with a typical balanced mix – 60% in stocks, 30% in bonds or cash, and 10% in other assets. After a big run-up in tech stocks, that mix might now be closer to 75% stocks and 25% everything else.
Maybe those stock gains were concentrated AI-related stocks. The types of high flyers that can make us rich or poor in the blink of an eye. Your risk exposure has increased, even if you haven’t bought a single new share.
By selling a little of what’s gone up – and reinvesting in what’s lagged – you restore your original balance. It’s not about calling the top. It’s about locking in gains and keeping your risk in check.
It’s the investing equivalent of tightening your seatbelt before turbulence, not after.
Here’s how to do it in practice:
- Set your target weights: Decide what percentage of your portfolio you want in stocks, bonds, cash, and other asset classes. Your exact mix will depend on your age and appetite for risk. Talking to a financial advisor about this will help you find a mix that’s right for you.
- Rebalance those weights once or twice a year: You can do this manually or with TradeSmith’s portfolio tracking tools. If you’re weighting to stocks has risen to 70% instead of 60% – sell down your stocks until they’re back to their original weight. Use those proceeds to top up undervalued or out-of-favor stocks you own.
- Put it on autopilot:Emotion is the enemy of investing. By rebalancing on a schedule, you kill the temptation to time the market.
Rebalancing often means taking profits while sentiment is still euphoric. It also means buying what’s out of favor. This forces you to buy low and sell high, the most fundamental formula for success there is.
Rebalancing takes very little time. But it’s one of the most powerful tools for managing risk and compounding wealth over time.
It’s what I do in my own portfolio. And it’s what I recommend every TradeSmith reader does at least once a year – especially now while this melt-up is still running hot.
When markets are rising, discipline feels unnecessary. When they fall, it becomes essential.
And that’s not a lesson you want to learn the hard way.