investments & debts about equal - should I do it!!

mark55man

I have about 29K in various debts - all about 5-6% + a 200Kmortgage at 5.7 fixed for 5.

I also have about 27K (as it happens and following recent falls) in various ISAs PEPs and cash savings.

My cash flow is currently unbalanced by the debt payments (2 loans and a cc) - which I have tried to be aggressive with. I am suffering (lifestyle) from the long term money tightness (very grateful to all Martins tips, but they have left me with little to spend).

So in one fell swoop I could clear the debts by cashing in the investments - and then start to save again on a slightly longer rein - (but remembering all the good money saving habits :-)

So the question is - should I sell and repay (and start again) or maximise my investment (nearly all tax free, by working harder at it)

Apologies if this topic has been covered, but I couldn't see a thread for it.

Regards

Mark

DawnW

The question is, I guess, are you paying more interest on your debts than you are getting interest on your savings? If so, I would personally do it and have a new start. I paid a largish loan off from savings a few months ago, and although it was not nice taking 000s out of my saings accounts, it was a nice feeling to owe nothing to anybody, and I have since put most of the money back. I guess it depends on how determined you are not to get in debt again, and to replace your savings.

mark55man

they are a fairly diversified load various mixed funds + about £10K of shares with my employer - which are going nowhere at the moment. very little in actual cash so hard to give precise %age. (I will look at overall performance over years - but also need to think about local factors - eg the fact that FTSE just dumped 10% of value)

typical IFA diversification following post tech stock collapse (didn't lose but could have gained so much more)

I guess another strategy would be to sell off in chunks - I guess pound cost averageing in reverse (ie once a quarter) to meet next 3 months payments

dunstonh

typical IFA diversification following post tech stock collapse (didn't lose but could have gained so much more)

What is typical IFA diversification? HYP? Asset allocation? Sector allocation? multimanager? fund of funds? There are a number of different strategies, including hit and hope.

mark55man

By typical diversification I meant

"mixture of UK, European stocks - to serve the purpose (and I am sorry if this sounds negative) more to show that appropriate diversification had been conducted to meet my risk profile, than actually to see my returns improve."

I know its my responsibility, but I was (and still am but a bit less so) very busy, so thought going to an IFA would allow (as a return for my fees and commissions) be a bit less formulaic and box ticking and more active and engaging and considered.

I do not feel happy with the returns so far so i could just have the wrong IFA. Perhaps I should rephrase the question (if I may be so bold). If you had a client with £30K of investments and £30K of debts at about 6% average APR (not mortgage) - would you tell him:

• to totally clear the slates and start again with a savings plan using a revised savings targets based on new situation
• to review the investments and identify a realistic approach for returning more than 6% (mainly tax free)
• to do something in the middle - gradual reduction to meet the debt payments, but not big bang

dunstonh

It would depend on the individual and their risk profile. I am in investment specialist ISA and not a GP IFA or mortgage IFA or one of the many other types available. So, my portfolios are typically better allocated than average (the term IFA covers so many skills, qualification levels and specialisations. Something the FSA is addressing and likely to change in 2009).

I have debts but I still have investments. My investments on average beat the interest rate on the debts so I am quite happy to continue investing. Where interest rates are higher, I would suggest you clear them but thigns like mortgages or low interest/interest free debts, I would suggest you leave and keep invested providing your risk profile matches.

to review the investments and identify a realistic approach for returning more than 6% (mainly tax free)

6% p.a.? erm, yes. You should look at your spread. Double digit average is what I look for with medium risk or higher. If you dont set the investments up to get the potential for double digit returns, then you may as well clear the debt.

nrsql

It doesn't have to be all or nothing.
Why not cash in some of the investments to pay off some of the debts to make things easier on yourself.
Look at what selling half would do and use that to influence your decision - whether you would prefer more or less. You might end up deciding all or nothing but at least you will know it's what you want to do.