Invest or Overpay Remortgage

Wilkins

racing_blue wrote: »

Do you attempt to time the market, generally?

(genuine Q- I have read so many times that this may be a flawed approach)

Not in the sense that I try to take advantage of every twist and turn, selling on 5% gains and buying on equivalent drops. This would cause too much churn and incur significant transaction costs. The old adage "time in the market, not timing the market" should be accorded great respect.


However, there are times when it would be silly to ignore the occasional golden opportunity. In my view it is easier to gauge when markets are oversold rather than overbought and I did buy heavily in the late 80s, early 00s and 08/09 when equity markets were good value. Conversely, I have never really tried to sell out at the right time. I deal with this by never having more than 60% in equities or less than 30% in cash. In the short term this is inefficient, but in the long term it I find it to be a good strategy.

gadgetmind

Thrugelmir wrote: »

All pale into insignificance though if the link between the state pension and inflation is broken..

Not really.

For many people, what they put into state pensions is a fraction of what they get back out. For others (including myself) they could retire at 70 and live to be 250 without the state losing out.

Minor tweaks to indexation will still leave the winners winning and just require the losers to limp along to age 300.

jamesd

Thrugelmir wrote: »

Hindsight is a wonderful tool if you possess it. Along with forecasting employment, relationships and health. So many variables to consider. Not just investment returns.

Many variables, but it is known that historically investment returns have exceeded mortgage interest costs, so those overpaying on a mortgage would have ended up poorer than those who invested the money instead. Which is why just reporting savings and not reporting lost gains matters: it can mislead those who don't look at the alternatives but just see big numbers for interest savings.

gadgetmind

jamesd wrote: »

so those overpaying on a mortgage would have ended up poorer than those who invested the money instead.

Or not, depending on the period of investment, asset allocation, interest rates, and much more.

Of course, there are also psychological factors, and I tend to avoid geared investments. Perhaps I avoid them too much, but I've seen a a fair few friends (and one business partner) crash and burn due to gearing into "bound to make me richer" investments.

jamesd

There's no gearing involved, the borrowing already happened for reasons other than investment: providing a home. That provides its own return on investment in a range of monetary and non-monetary ways.

The question is what to do with the money that can be overpaid, overpay or invest. Yes, the potential gains vary but the long term trends are very positive, even if not guaranteed. If a chance is to be taken, better to go with the most likely result, investing, than the least likely one, overpaying.

Thrugelmir

jamesd wrote: »

Many variables, but it is known that historically investment returns have exceeded mortgage interest costs,

I'm sure it's possible to find a fund that will meet the criteria. What's the likelihood of an investor choosing or being directed to this fund though.

One only has to look at the constituents of the FTSE to see the changes over the years. Most of the companies that constituted my PEP originally have all but disappeared or been morphed into a different entity.

planteria

gadgetmind wrote: »

Annual Allowance reductions, Special Allowance knee-jerk legislation, Lifetime Allowance reductions, threats to PCLS, threats to ISAs, you may not see it, but it's there.

i mean i do not see the government imposing a lifetime ISA allowance any time soon. or, for that matter, reducing the annual allowance. a slim chance if Labour get back in, but none if we continue as we are.

planteria

jamesd wrote: »

Many variables, but it is known that historically investment returns have exceeded mortgage interest costs, so those overpaying on a mortgage would have ended up poorer than those who invested the money instead. Which is why just reporting savings and not reporting lost gains matters: it can mislead those who don't look at the alternatives but just see big numbers for interest savings.

agreed. 'Jim Slater: How to become a millionaire' is all about exactly that. at the same time, the benefits of paying down a mortgage are clear to see, safe, and sensible.

jamesd

Thrugelmir wrote: »

I'm sure it's possible to find a fund that will meet the criteria. What's the likelihood of an investor choosing or being directed to this fund though.

High, since that's what a FTSE All Share Index tracker fund does. Though I wouldn't personally favour that as a core investment, preferring a global tracker instead.

kidmugsy

jamesd wrote: »

There's no gearing involved, the borrowing already happened for reasons other than investment: providing a home. That provides its own return on investment in a range of monetary and non-monetary ways.

Oh come now; you are geared whatever your motive is.