Surprise! When Joe Homeowner follows this advice the only guaranteed winner is the financial-services industry. Why? Money flows into the market (large sums of it) for investment. Sales quotas are met. Commissions, sales loads and bonuses are generated. That makes Merrill Lynch and Joe’s mortgage banker very happy.

But will Joe be happy? Successfully leveraging home equity into the stock market is predicated on several factors:

• Your home’s value won’t decline for an extended period of time. (It can happen. Look at Japan.)

• The market won’t decline, or trade sideways, for an extended period of time. (It can happen. Tap redial and check with Japan again.)

• You won’t need the money in a hurry and be forced to cash out your investments at a significant loss.

• You’re already quite affluent.

• Your life needs more risk.

Let’s create two scenarios:

Scenario 1

Bob Smith owns his $200,000 home outright. He refinances the house at 7 percent for 30 years, withdrawing $100,000 cash.

He invests this in the mutual funds his broker advises. Mr. Smith is in the 25-percent tax bracket. Since mortgage interest is tax deductible, his effective interest rate on the mortgage is closer to 5.25 percent. His monthly payments are $665. Not having much cash to spare, once each year Smith draws down his investment account to cover 12 monthly payments plus the amount he owes in federal capital gains taxes.

Ten years pass. Mr. Smith has paid not quite $44,000 in mortgage interest, plus $2,500 in closing costs when he initiated the refinance. Even so, after commissions and fees his mutual funds have done quite well — they’ve increased in value by 8 percent per year.

At the end of the decade, his investment gain is $47,300. Subtract the expenses above (mortgage interest and closing costs) and his net profit is only $890. If Mr. Smith’s state taxes capital gains at any rate greater than 1 percent, he will actually lose money.

Whoops.

Scenario 2

In this case Mr. Smith is affluent enough to leave the entire $100,000 invested. He pays his mortgage payments ($665 per month) and his annual capital gains taxes (anywhere from $2,000 to $4,000 per year) with income from his job. Now the picture changes significantly.

Here, Mr. Smith enjoys the price appreciation of his home and leverages his home’s equity into an after-tax investment gain of $86,900 by the time the decade is up. Subtract the interest and closing costs, and he’s racked up a net profit of $40,400.