Best Investments?

Scarla

Without going into too much detail, I have around £150-£200 per month to invest. I need to get the best possible to return in order to pay a lump sum off my mortgage in 15 years time. I realise that this may involve high risk, but it's a risk I have to take as cannot afford any more per month. I have stupidly been paying my mortgage on an interest only basis so am not in a position to pay off my mortgage in full, in 15 years time. I can't afford to change my mortgage to repayment only as this would be too high a monthly payment.

I have no idea where to look.

I realise I may not get the full sum I need, but anything is better than nothing.

Please do not be judgemental, there are many factors involved as to why I haven't paid on a repayment basis.

dunstonh

but it's a risk I have to take as cannot afford any more per month.

If you can only afford £50-£200pm then it suggests that taking too high a risk could be an inappropriate thing to do.

I have stupidly been paying my mortgage on an interest only basis so am not in a position to pay off my mortgage in full, in 15 years time.

And that position is unlikely to change by paying an amount that is too low. Maybe you should speak to the lender about switching to a repayment mortgage and extending the term a bit.

I realise I may not get the full sum I need, but anything is better than nothing.

Something is not better than nothing. The required amount is the important bit and taking unnecessary risk when you have alternative solutions may be the better option.

lippy1923

I second the above post. Speaking to your lender early on is the best thing. Perhaps extending the term and changing to repayment is what they will suggest.

Good luck.

puk999

EDIT: I was composing this while dunstonh was posting post #1. He's right about you needing the full sum and not taking risks. I was posting purely addressing your investment query and should've took a step back. Hope it goes well approaching the lender.

Before you invest you want to protect your investments from being used to fund unexpected purchases. Such purchases could include boiler breakdown, unexpected car maintenance, being unemployed for a while, etc. This "emergency fund" is separate from your investments and should be sitting in easy access cash accounts and should be roughly 6 months worth of expenses. This money can go into high interest current accounts like TSB Classic Plus £2k at 5%, Nationwide FlexDirect £2.5k at 5% (for 1 year only), Club Lloyds £5k at 4%. Look here for more information on the current accounts and there's also many, many threads about them in the Savings & Investments and The Budgeting & Bank Accounts Board. Once you have the emergency fund in place, it's onto the investing.

When starting, look at funds rather than holding shares directly in individual companies. You also want low cost funds as costs eat away at returns over time and the compounded effect is dramatic. Tracker (also called passive) funds are the cheaper ones. These follow an index as opposed to being actively managed by a human. The index is simply a list of companies to put the money in and when this index changes (say every quarter), your fund will automatically adjust to match the index without your intervention.

As the UK is really quite small people don't generally form a core of investments around the FTSE 100 or 250 index. They go global, spreading their money over hundreds of companies around the world in a tracker fund that follows indices such as the MSCI World Index. This particular index list companies from 26 developed nations. Other global equity world indices exist.

You don't want all of your money in equity (company shares) though. You want to diversify into other "asset classes" that hopefully will not move in tandem with your global equity tracker core. So, if global equities are generally down, then your other asset classes might be up, or not down as much. Bonds are typically used as a diversifier to equity. You can also go for commercial property, residential property, emerging markets (EM), smaller companies. All of those are available using funds but they'll be more costly than your global equity core.

Choosing the proportions of global equity, bonds, etc is called "asset allocation". You can do the asset allocation yourself by purchasing the funds individually. Here you might have 6 funds (your core global equity tracker fund, 2 bond funds, commercial property fund, EM fund, smaller companies). You can get someone else to pick the funds for you by simply choosing a fund of funds (also called a multi-asset fund). Examples of this are Vanguard's Life Strategy and the L&G Multi-Index. With the Vanguard LifeStrategy, you simply choose a percentage 20%, 40%, 60%, 80%, or 100% which is the percentage that will be in equity. The remaining percentage will be in fixed income (bonds). Generally speaking, the higher the percentage in equity, the higher the risk.

You want to do all this in an ISA to protect yourself from taxes. You also want to choose a low cost platform. The platform is the company who you buy the fund(s) via and where you logon to get valuations, setup regular payments, etc. You probably won't be dealing with Vanguard directly as they only want to deal with people who have a very large amount to invest (say £100k).

As you need all of the money in 15 years time, you need to be more careful than the person who is saving for retirement and accessing the money over a prolonged retirement period. Something to think about while you're getting the emergency fund together. It would be bad to have a stock market crash a year or three before the repayment date! For this reason, you'll want to adjust the asset allocation well before the date into safer investments (preferably cash).

Scarla

If I changed to repayment as it stands now I would have to find an additional £400 which I can simply not afford.

Not sure they would extend the term as it stands now it takes me up to near retirement age.

dunstonh

If I changed to repayment as it stands now I would have to find an additional £400 which I can simply not afford.

And without figures, you would probably need to put around £450-£500 into an ISA each month to repay the mortgage. So, £150-£200 isnt good enough.

Not sure they would extend the term as it stands now it takes me up to near retirement age.

And what will happen when you get to the end of the mortgage term when you dont have enough money?

LHW99

Is there an option of using the additional money by overpaying the mortgage monthly?
Some lenders on interest only deals let you overpay by 10% even on a fixed rate.
That would gradually reduce the amount O/S and may be at some point you could either swap to a repayment or increase the overpayment amount to reduce the debt even further.

You wouldn't have the flexibility that investments or savings have, but you wouldn't lose the money, or be tempted to spend it elsewhere.

Scarla

I'm going to call mortgage company tomorrow and ask about changing to a repayment. I have only used a mortgage calculator to work out the repayments. Also, if not I will ask if I can overpay by £200 per month.

I have a pension due to be paid when I am 55 of approx. £38000 so will take that as a lump sum and it should reduce the mortgage a bit. I will start another pension now so that I can draw on that one when I reach retirement age.

Thank you all for your advice.

Scarla

dunstonh wrote: »

And without figures, you would probably need to put around £450-£500 into an ISA each month to repay the mortgage. So, £150-£200 isnt good enough.



And what will happen when you get to the end of the mortgage term when you dont have enough money?

I will lose my house.

Scarla

It's all very well saying that I need to save around £500, but I don't have it to save. I'm now paying the price for my stupidity.

masonic

What does your £150-£200 per month need to turn into in order to pay off your mortgage?