savings vs. mortgage overpayment

planteria

boglehead wrote: »

I think that putting in what the company matching is fairly safe, as you only give up £6 of net salary to get £20 in the pension - anything beyond that is risky. Especially since we both will hit the lifetime allowance before our retirement age.

if you are sure of that, then i would agree & just contribute as much as the employer will match.

planteria

this really is a great thread:T

and you are in a really good position boglehead...thinking about things in the right way too.

fwiw i wouldn't be too worried about having a high percentage of your asset base in London property, because i think it will continue to be a good investment. so i would see the potential to benefit from other asset classes as very positive, without necessarily feeling any pressure to 'balance up' what you already have.

boglehead

planteria wrote: »

this really is a great thread:T

and you are in a really good position boglehead...thinking about things in the right way too.

fwiw i wouldn't be too worried about having a high percentage of your asset base in London property, because i think it will continue to be a good investment. so i would see the potential to benefit from other asset classes as very positive, without necessarily feeling any pressure to 'balance up' what you already have.

I think thats right. For this reason i might invest the remaining money into taxable account, in ultra low cost index etf with low turnover to limit cgt... And consider a offset mortgage when i refinance in 18month, using my emergency fund against it.

Thrugelmir

racing_blue wrote: »

Paying down debt does not make sense to me, compared with investing in asset classes which may appreciate. The real value of debt is shrinking all the time and a few years of high inflation would make a huge dent in it.

Debt levels are now too high for inflation to erode them. After 60 years of Keynes oriented money expansion. Reverse gear has been engaged. As deleveraging becomes the new game in town. Other factors too are having an influence. Certainly a new era though.

racing_blue

Thrugelmir wrote: »

Debt levels are now too high for inflation to erode them. After 60 years of Keynes oriented money expansion. Reverse gear has been engaged. As deleveraging becomes the new game in town.

Could you expand Thrugemir?

The new game in town could be deleveraging, draughts, or spin the bottle. But surely inflation will always erode debt in real terms. In my view.

boglehead

racing_blue wrote: »

But surely inflation will always erode debt in real terms. In my view.

As surely as the taxman will neved forget you!!

planteria

i'm not really an index guy, would rather at least try to beat the index, but i understand the logic in favour.

i sent you a private message, boglehead (incase you didn't spot it).

FinLit

The best way to save money is by investing on the right place on right time.:T

racing_blue

boglehead wrote: »

What i am still struggling to understand though, is the idea that you could be fine with an IO on that house. Is it your principal residence? Do you intend to sell it and move out when you retire / down size. Or as you said earlier, sell other assets to pay it off eventually?

Hi BH.

My view, the key decision was taking a mortgage in the first place. That was the moment that you decided to expand your balance sheet- both assets and liabilities. Once that decision was made, game on (to borrow Thrugelmir's analogy).

If endgame -retirement- involves being debt free, then at some point between now and then, you'll need to shrink the liability column to zero, right?

But a young guy, earning well, with good prospects and some appetite for risk? Rather than using income to shrink liabilities at this early stage of play, why not use it to expand assets? Looking for asset classes which are under long term mean value; and for local opportunities where some sort of unique edge exists.

Much later, as the game draws to a close, a planned exit from some of these investments will allow you to repay mortgage- which in real terms you might expect to have shrunk significantly anyway.

I can see that this approach is not right for many people, by the way. But hope it provides some sort of answer to your Q about my own approach. I'm enjoying this discussion - thanks.

planteria

great post RC, and you are right, enjoyable discussion.

it's an unanswerable question......i know people who are determined to focus on clearing all debt before investing, and then, with no debt repayments to make, invest hard.

and others who leave the mortgage well alone and invest hard, alongside their mortgage, from an earlier stage.

i can really see both sides. i use an IO mortgage myself, but am actually paying down debt alongside investing.