Newbie Question - Debt v Investing

Mister_Bump

Hi, i have some experience of saving but am a total newbie to investment and need some advice.

I am 35. I have £100,000 saved all in cash, i have no investments whatsoever but i have a mortgage in principle of £110,000 as a first time buyer at 3.24%.

I have also seemingly been flagged up by Nationwide as having too much cash sitting in low interest accounts and so i agreed to see a financial adviser.

I told them that of the 100k; 60 was for a house, 10 for a new car and stuff and 10 for an emergency. I said that the remaining £20,000 was a nest egg and they recommended to invest it in unit trusts.

My question is the one i asked the adviser - Would that 20k be better invested into the house / mortgage therefore reducing my debt rather than investing elsewhere?
He said no because the interest rates on these funds can be bigger than your mortgage rates.

I intend to be in either a house or another investment long term.

I understand the risk and reward element of the unit trusts and that no-one i guess can give me a definitive answer, but surely it makes sense to pay off / eliminate debts before investing?

Lokolo

It makes sense to pay off debts when the debt interest is high.

As a mortgage is a low interest debt then you can get better returns by investing elsewhere. However I wouldn't go to Nationwide for financial advice.

Mister_Bump

Ok thanks Lokolo, i guess i should pay the 25% deposit on a house and search these forums for the best way to invest the rest?

xrjtg

You should expect to hold investments linked to the stock market for the long term. The current low rate you are paying on your mortgage may not last.

Could you get an even lower mortgage rate if you had a larger deposit?

A few things there for you to think about.

Mister_Bump

xrjtg wrote: »

You should expect to hold investments linked to the stock market for the long term. The current low rate you are paying on your mortgage may not last.

Could you get an even lower mortgage rate if you had a larger deposit?

A few things there for you to think about.

xrjtg, yeah i would definitely intent to hold the investment in the long term.

Your other two points have really boiled down what im trying to get at i guess, except that i was looking at the mortgage in terms of the size of the debt than the interest on the repayment.
I need to look into it all more i think, i dont understand it all enough

atush

I think not too many eggs in one basket.

I know people who are ISA only. Others who are savings in cash only. Others hwo are property only. Others are pension only.

I say no onlys. The best way to go is a multiple apporach and attack all areas.

Pay off alld eb that is unsecured first, highest APR first. which means overdraugts, student loans and mtgs are last. I would leave the lst two, if you are getting better rates whan what thye cost. In your case i am thnking you aren't, so would over pay.

But you have a Big glaring savings warning sign over your head. One, you dont' say how your cahs savings are held. If they aren't in cash ISAs or NSI certsyou are payig tax on your savings income. So stop that, and start moiving money where the intrst is safe, you can shelter over 20K a year PP in cash isa and NSI ilsc.

2, cash rates won't keep up with inflation, and if they do won't grow as much as investmetn over 10 years or more.

So i would put some of your money into collective investments. 2 things:

one, not al collective investments are UTs. there are OEICS, but I prefer Investment trusts.

Two, if depositing lump sums in investments costs you sleep at night as you worry the min you put it in that it could lose money, there are some ways around it.

Invest in collective funds rather than individual shares. they are less likely to fall dramatically as the fiunds are in more than one company.

And drip feeding money into a markt will smooth returns and decrease volatility. You can out in say 200 amont, intead of 2400 once a year. If prices go up, OK great. If they go down, then you buy more units per Poind than before. So when prices eventually recover (and they do) your overall investmetn shoots up. It is called Pound Cost Averaging and really works.

Credit-Crunched

atush wrote: »

I think not too many eggs in one basket.

I know people who are ISA only. Others who are savings in cash only. Others hwo are property only. Others are pension only.

I say no onlys. The best way to go is a multiple apporach and attack all areas.

Pay off alld eb that is unsecured first, highest APR first. which means overdraugts, student loans and mtgs are last. I would leave the lst two, if you are getting better rates whan what thye cost. In your case i am thnking you aren't, so would over pay.

But you have a Big glaring savings warning sign over your head. One, you dont' say how your cahs savings are held. If they aren't in cash ISAs or NSI certsyou are payig tax on your savings income. So stop that, and start moiving money where the intrst is safe, you can shelter over 20K a year PP in cash isa and NSI ilsc.

2, cash rates won't keep up with inflation, and if they do won't grow as much as investmetn over 10 years or more.

So i would put some of your money into collective investments. 2 things:

one, not al collective investments are UTs. there are OEICS, but I prefer Investment trusts.

Two, if depositing lump sums in investments costs you sleep at night as you worry the min you put it in that it could lose money, there are some ways around it.

Invest in collective funds rather than individual shares. they are less likely to fall dramatically as the fiunds are in more than one company.

And drip feeding money into a markt will smooth returns and decrease volatility. You can out in say 200 amont, intead of 2400 once a year. If prices go up, OK great. If they go down, then you buy more units per Poind than before. So when prices eventually recover (and they do) your overall investmetn shoots up. It is called Pound Cost Averaging and really works.

PCA only works in a falling market, on a bull run PCA really can lower your returns hugely

thenudeone

Mister_Bump wrote: »

they recommended to invest it in unit trusts.

My question is the one i asked the adviser - Would that 20k be better invested into the house / mortgage therefore reducing my debt rather than investing elsewhere?
He said no because the interest rates on these funds can be bigger than your mortgage rates.

The advisor is a mis-selling waiting to happen, but as the advice was given verbally you would find it difficult to prove what was said.

You don't get "interest" on unit trusts. It is not a savings account. It is invested in companies, even the biggest of which can fail. Remember Woolworths anyone? Did he not notice the value of shares drop by 30-40% between late 2007 and 2009?

I might expect it from second hand car salesmen. I was once told: Don't use your savings to buy this car. Why not leave your savings safe and borrow some money from this Finance Company instead? (It wasn't interest free BTW). But I expect better from a financial institution.

IronWolf

Never take financial advise from a bank or building society, they are looking out for themselves first and foremost.

Investing in unit trusts (essentially stock markets) is that you may lose money over the short term, so when you want to withdraw it to pay down the mortgage when interest rates rise, you find it would have been better in cash.

I think you'd be best with the highest interest savings accounts, an NS&I certificate and just wait for interest rates to rise then pay down the mortgage.

billcage

Hi! I'm a new member of this forum and want to take some advice. I also want to invest but I don't know where should I invest? I'm afraid of the scam today because a friend of mine was a scam victim...

Credit-Crunched

IronWolf wrote: »

Never take financial advise from a bank or building society, they are looking out for themselves first and foremost.

Investing in unit trusts (essentially stock markets) is that you may lose money over the short term, so when you want to withdraw it to pay down the mortgage when interest rates rise, you find it would have been better in cash.

I think you'd be best with the highest interest savings accounts, an NS&I certificate and just wait for interest rates to rise then pay down the mortgage.

The Irony, don't take advice from people with Level 4 Diplomas in financial planning. Then you go onto to provide detailed financial advice to a person you have very little idea on. The implications of your actions are significant, do you have the suitable qualifications?