Investment & Investing

The reasons for not doing so would be 1) utility of liquid assets (you need cash now for some reason)

Dunno about his mortgage, but with mine I'm pretty sure there was some facility so you could rip out the overpayments if you needed the cash back.

Unless you're so guru financial investor (you're not, none of you are, some computer in the US might be) I'd overpay.

My mortgage interest rate is 0.79%. Taking a long-term view, things would have to be extremely dire for me not to make more than that investing in funds.

You’ll get more than 3% In the long term if you drip buy tracker in a stocks and shares isa.

If you don’t then you’ll have bigger things to worry about than small beer on your mortgage - like global apocalypse and mass unemployment.

But sure if you literally do not know what to do with the money then overpay.

Bitcoin is the obvious answer

SPY puts.

If you can find an ISA with a decent return I'd be tempted to go with that to start with so you can take advantage of the tax.

At 3% though you're probably better dumping it in your mortgage (assuming you are OK with potential liquidity issues).

Not everyone has a rate that low and things can get extremely dire - talk of China's economy contracting first time since the 70s can't be great news. I'll stick with my boring by safe view that you can't live in a share portfolio.

Best fixed ISA return seems to be 1.2% at the moment according to Martin Lewis?

We still have a rainy day fund we'd be adding to whilst overpaying by almost 100%, so maybe drop a little bit into a S&S ISA too?

This is a pretty common question on reddit on r/ukpersonalfinance and r/fireuk

Here is a recent worked example:
https://www.reddit.com/r/FIREUK/comments/gpvjd7/paying_mortgage_down_versus_investing_debate/

The answer is always: head - invest, heart - overpay mortgage
Majority answer they prefer security of overpaying and security it provides

If you really are risk adverse and happy to lock away long term then pension/ SIPP or LISA is the safer answer

Yeah, but what is the nature of the investments? Are they just sticking money into a tracker fund and then 15 years later paying off the mortgage with profits? Does that really earn 5-8% or are we requiring these people to actively manage investments? If it's the latter, that's work and time so factor that into "costs". Also, they're saying 5% annual return on shares but what happens when have a Covid event? What are tracker share returns going to be like for this 5 year period?

I'll stick with my boring by safe view that you can't live in a share portfolio.

This is true, but when you are older you cannot eat bricks :p

Yeah, but I paid off this place a while ago and so now have other investments.
I can rent this and fuck off somewhere else (Hola!). I didn't spend the last 10 years shitting myself every time the stock market had a wobble either.

I also don't have a mortgage and just do massive pension payments. I put a small amount into some Blackrock, Ftse 100 and some Japanese tracker funds but the gains in one always get offset by the loss in the other. I really don't know what I am doing with that.

"Wobbles" even out over the typical 20-year period of a mortgage. Only invest what you can afford to lose, and only invest what you don't need right now, of course, but if you're not investing and growing your money then you're falling behind.

My average return for the past 10 years is over 5%, even after accounting for the incredibly rare events of Brexit and Covid.

How many years does overpaying take off your mortgage? How many years of compound interest do you miss out on, by spending on overpaying? I did the maths and the risk/reward came out pro investing.

if you're not investing and growing your money then you're falling behind.

Yes, this is real. It's quite scary if you need to be in the SE of England.

Overpaying in order to reduce LTV is interesting, I hadn't considered that. Although I think once you get to a certain LTV ratio it stops becoming beneficial?

I think it's a bit more useful when mortgage costs aren't what they are now, i.e.

no mortgage -> pricey mortgage -> less pricey mortgage

rather than

no mortgage -> cheap mortgage -> pretty much free money

Overpaying in order to reduce LTV is interesting, I hadn't considered that. Although I think once you get to a certain LTV ratio it stops becoming beneficial?

Overpaying just to reduce LTV doesn't make sense. You can invest elsewhere and then use that money when remortgaging to get a better LTV. There's nothing to prevent you overpaying your mortgage in a lump from savings/investments when it comes to remortgage time.

How do you compare a salary sacrifice pension vs investments? If you are in the higher tax bracket you get a lot of "free" money but that
doesn't compound over time like interest. Is there a point where a fund would outperform the pension over 20 to 30 years?

Am I likely to get better than a 3% return in the next three years from layperson level investing?

Except of course you need that money at a specific time (two years in this case), so if the market is in the shit at that time you are screwed

How do you compare a salary sacrifice pension vs investments? If you are in the higher tax bracket you get a lot of "free" money but that doesn't compound over time like interest.

Not entirely true. That money is used to buy allocations, those allocations provide a dividend, that dividend is re-invested. And it continues.

Is there a point where a fund would outperform the pension over 20 to 30 years?

Yes, for lots of reasons. But I think you have things a little muddled; a Pension is usually invested in a 'fund'. I think what you really mean is would chucking stuff in the equivalent ISA be better long term, and the simple answer is yes if you have a lot of money, and no if you do not.

Am I likely to get better than a 3% return in the next three years from layperson level investing?

Yes, you're likely to. Average FTSE 100 returns since it launched are 7.75%

But past performance not an indicator etc.
There's always the possibility that it tanks just before you need it.

Or it tanked a little while ago so there may be better returns as it recovers.

Who knows.