Mortgage overpayment vs investing

jimjames

chockydavid1983 wrote: »

JimJames, from what I've been studying, I think at the moment I subscribe to the Capital Asset Pricing Model. In that case, it seems my other options are choosing a fund that includes other markets like international or emerging markets etc and/ or purchasing a risk free (ish) asset such as a government bond?

Thanks,
Chris.

I don't know what the Capital Asset Pricing Model is but I find it hard to believe that it suggests only investing in a UK FTSE tracker.

You can get trackers for most if not all markets.

chockydavid1983

Thanks guys.

I do have an employer pension that I pay into and my employer matches up to a certain %. I do need to review how much is going in though and maybe increase it.

Are there funds that track all markets or would I need to buy a fund for each of the markets I wanted to track? I haven't checked out specific funds but from what I have learnt tracking more funds gives you more diversification but you would normally be paying higher fees that won't necessarily give you proportionally better returns.

As I said though, this is all pretty new to me so I'm just going by my own research, I don't have any practical experience yet, which is why it's great to hear from people on here.

Thanks,
Chris.

atush

yes, there are Global trackers you can use.

jamesd

chockydavid1983 wrote: »

Are there funds that track all markets

Look for "global tracker" funds. They will normally be "ex UK" meaning excluding the UK.

redpete wrote: »

But do take into account the small phrase "likely to" and consider what would happen if what was considered 'likely' doesn't actually come to pass.

This historic probability of beating mortgage interest rates has been something around 99% for each month's investment. Over the duration of a mortgage the regular investing increases the probability of achieving the expected result. But it's still not a guarantee and monitoring and provision for the chance of a shortfall is desirable.

In the short term there are investments like P2P that provide predictable interest rates above the mortgage interest rate over terms of up to five years. Or VCTs with their 30% initial tax relief and some offering predicted and likely reliable 10%+ tax free income.

chockydavid1983

Thanks for your replies guys.

I think in terms of funds I'm looking at one that tracks the FTSE All Share and one that tracks the international (ex UK) markets.

One thing I'm not sure about is the exit fees mentioned here:
http://monevator.com/compare-uk-cheapest-online-brokers/
Is a fund equal to 1 holding?

steelbru

Yes, by "holding" they mean each unique fund or share you are invested in.

So if you had an ISA that was invested in 10 different funds, and your platform charged £20 per holding to transfer to a different platform, then that would cost you £200.

Of course you could switch all your money into one fund, just before you transfer and only pay £20 ( plus any dealing costs, some platforms let you deal funds for free though ). Then you'd need to split your holdings once in the new platform into all the different funds again.

Far better to find a platform you are going to be happy with long term, which for many people means low costs and not necessarily the most swoosh jazzy website.

chockydavid1983

Thanks for the clarification steelbru.
It looks like Cavendish Online may be a good bet for me with low fees and no exit fees. I will likely start off with a small fund only portfolio and if it reaches a level where the fees of others are better or I want other stuff like shares I can exit for free.

Thanks,
Chris.

chockydavid1983

I've now just been reading a bit about dividend growth investing and was wondering if the dealing fees mentioned here are per transaction, i.e. if I wanted to buy x shares in a particular company it's a flat fee for the whole transaction?
http://monevator.com/compare-uk-cheapest-online-brokers/

steelbru

Yes, the dealing fee is fixed irrespective of the number of shares you buy. So it works out a big consideration if you are only buying say £50 worth, but if you are buying £50,000 then more or less irrelevant.

beefturnmail

webnibbler wrote: »

You possibly need to consider inflation which will impact investments and mortgages in different ways. This will give you a view in 'real' terms. For example an investment return of 5% (after fees) with an inflation rate of 2% means your real return is 3%. For your mortgage the opposite is true - inflation is reducing the debt in real terms by 2%.

Can't offer you an exact calculation to take this into account, but it's worth bearing in mind.

I think inflation is irrelevant as it affects debt and savings in the same way. Just compare the expected return on investment vs the interest rate on the mortgage. If the first is higher it's better to invest, if not, better to pay off your mortgage. This will be true regardless of the rate of inflation so no need to complicate things. Of course there are other complications to consider though, such as: risk, access to an emergency fund, loss of access to funds if used to overpay and then having to reborrow later on at a higher rate.