Mortgage overpayment or invest for better return

EdGasket

Why do you think you will do better in funds? I've had a pension that has done nothing but fall in value for years no matter what its invested in! Luckily I paid off my mortgage first and advise you to do the same.

d70cw6

Also depends how disciplined you are. would you be tempted to splurge all your savings on cheap !!!!!s and expensive whisky - if so I'd suggest overpay your mortgage to prevent temptation.

Im sure you get my point.

SamDude

I have a company pension through my employer, so I have regular contributions via payroll. I'm in my mid-(to upper) 30s and love the idea of getting this debt out of the way so we can use our money for our future (cashing 25% of the pension isn't an option that I'd consider for now).

While I'm not perfect or an expert on all financial matters, I would like to think that I am disciplined to the point that I'm ahead of the average consumer - always spending within my means and always aiming to get more for less, jumping on the cashback and rewards opportunities (just like most others here on a proactive basis (you lot!)).

We've been through the few years where we we have used our savings to renovate the house, then renovate the kitchen, then buy a couple of nice cars (and pay for pre-school nursery, before our son started school this past September).

My trigger to start overpaying was to keep a safe amount of emergency savings to hand, but not build up the savings to the point where I'd be tempted to spend on changing cars or other luxuries (Audi = my Achilles heel).

I'm going to start looking at the book and info that pathtofreedom recommended and see if I have the gumption to do it.

pathtofreedom

I am only about 6 months behind you in finding some of this stuff, so it doesn't take too long to get your head around it all. You don't want to be messing and changing things every day with passive investments either, as it will cost you more in fees and you could lose more trying to guess what the markets or oil prices will do next.

With your work pension is it salary sacrifice, as I only started mine a couple of years ago, and am the same age as you, so I have a lot of catching up to do to save enough to get to "the number". I just don't have kids though, so don't have that extra expense, but depending on your income it might be worth paying more into the pension to keep you out of the hrt bracket if you're near that. That way you're saving youself 20% tax on that money now, and it all goes towards helping compound to a bigger pot later. Even if they change the withdral rules 10 more times before we get to 58, having that extra in there compounding for 20 years I think is worth it, rather than just paying tax on it now.

If it is a dc pension where you pick funds understanding the passive investing will also help with your strategy for that as well. I'm going to try and not have too much overlap between my ss nisa and my pension though, to make sure I'm more diversified so if the ftse or world markets dropped, I hopefully won't lose lots in both then. I'm still working on the best way of doing this though but the more I read the more it comes together.

You can look at websites like morningstar to make a virtual profile for free, before you risk any real money just to see if you're doing it right as well.

SamDude

pathtofreedom wrote: »

You don't want to be messing and changing things every day with passive investments either, as it will cost you more in fees and you could lose more trying to guess what the markets or oil prices will do next.

Agree with not tinkering too often.

With your work pension is it salary sacrifice, as I only started mine a couple of years ago, and am the same age as you, so I have a lot of catching up to do to save enough to get to "the number".
...but depending on your income it might be worth paying more into the pension to keep you out of the hrt bracket if you're near that.

I work for a particular bank that is often in the news(!).
The pension is an element of the total salary that I've chosen to chuck all in (around 10% of salary), rather than taking it as cash (-tax). The managed pension investment funds are mid/high risk at the moment and are valued at more than I've paid in, so I'm just letting that tick along in the background.
I'm not at the hrt threshold, but that would be a nice problem to have.
I'm also paying into the sharesave - if our government-backed shares finally manage to engage the right gear, I'll have more nice problems :rotfl:

You can look at websites like morningstar to make a virtual profile for free, before you risk any real money just to see if you're doing it right as well.

Great - thanks!

jimjames

EdGasket wrote: »

Why do you think you will do better in funds? I've had a pension that has done nothing but fall in value for years no matter what its invested in! Luckily I paid off my mortgage first and advise you to do the same.

That's quite some achievement to fall in value particularly over the last few years.

Out of interest what have you actually put your money in? Or has it dropped from trading out of different funds at the wrong time?

Broken_Biscuits

atush wrote: »

I agree with this point of view, and in fact practice it myself. We overpay a bit (even though we probably should not) to bring down the length of term. We also pay into pensions, save in cash and in investments too.

You haven't mentioned a pension, and this is as important if not more than overpaying a mtg.

So split your money. Overpay by 250, put 250 into pension and 500/m into a S&S isa.

i would say overpaying a little follows the golden rule of diversifying perfectly.

we all assume equities will smash bonds, overpaying and cash over the years, but still cannot be sure. A few grand off the mortgage. 20% or so on bonds, maybe 10% on property funds for the chance of a more steady ride. No one Can certainly predict the future and so some overpayments add to the chance of holding onto the most amount of your money come the end.

EdGasket

jimjames wrote: »

That's quite some achievement to fall in value particularly over the last few years.

Out of interest what have you actually put your money in? Or has it dropped from trading out of different funds at the wrong time?

Oil shares when chancellor hiked North-Sea Tax. Gold post-peak but still prematurely, some AIM shares that turned out to be frauds, Mining shares, and last but by no means least the 'safe' supermarkets. These have been the main reason for the decline. I have had successes elsewhere but overall losing about 10% after several years so pretty dismal really.

I think I was unlucky with that surprise budget announcement on N. Sea oil; knocked 25% immediately off many of my investments. Gold should have benefitted from QE/inflation but hasn't so far. Mining - I was not aware until recently of commodity cycles; and supermarkets just plain unlucky again.

jimjames

EdGasket wrote: »

Oil shares when chancellor hiked North-Sea Tax. Gold post-peak but still prematurely, some AIM shares that turned out to be frauds, Mining shares, and last but by no means least the 'safe' supermarkets. These have been the main reason for the decline. I have had successes elsewhere but overall losing about 10% after several years so pretty dismal really.

I think I was unlucky with that surprise budget announcement on N. Sea oil; knocked 25% immediately off many of my investments. Gold should have benefitted from QE/inflation but hasn't so far. Mining - I was not aware until recently of commodity cycles; and supermarkets just plain unlucky again.

To be fair I'm not sure I would consider that to be a balanced or low risk portfolio and certainly not one I'd recommend. If I was putting money aside instead of overpaying mortgage (as I do) then I would use funds rather than shares and not be exposed to the risks of individual shares. The return "may" be lower but then compared to a risky option as you've described, it may also be higher without the rollercoaster on the way.

EdGasket

Yes, I have come to that conclusion. At least my mortgage was paid off first. Before the chancellor introduced that surprise tax I was quite in profit; it's a long haul back but I'll get there one day ...if I don't die first.