Hit a bit of a crossroads

SGreen

I'm hoping somebody will have some suggestions.


I'm in my mid 30's and have two young children. I have no debt bar my mortgage of £120k (8 years to run) on a 1.9% fixed deal.

We have enough savings in the bank to cover all expenses for at least a year and are both fortunate to have stable jobs.


We typically have circa £2000/month spare and I'm trying to decide whether to aggressively pay down the mortgage early (albeit with a 10% overpayment limit) or invest in stocks/shares or even property.

If you were me, what would you do with the surplus?

Cheers.

xylophone

You both have pensions?

You have the best joint current account for paying all essential bills?

https://www.google.co.uk/webhp?sourceid=chrome-instant&ion=1&espv=2&ie=UTF-8#q=santander+123

The above would also hold your emergency savings.

Consider a stocks and shares ISA for each of you - you could each contribute £1000 monthly.

http://monevator.com/find-the-best-online-broker/

http://monevator.com/category/investing/passive-investing-investing/

Do your children have JISAs?

https://www.gov.uk/junior-individual-savings-accounts/overview

webnibbler

What do you have in the way of pensions? It could make sense to up your contribution to your employer's pension scheme, assuming you have been auto enrolled, particularly if you're a higher rate tax payer. If your employer offers salary sacrifice and any NI savings, then this can be a very effective way of investing for your future. I would look into this first.

Any remaining I would split between long term investing in S&S ISA and paying down the mortgage. Trying to guess which will be the most effective between paying down the mortgage and investing is almost impossible because of the time scales so I would just do both.

This is just what I would do based on the information you've given, there may be other circumstances which could change the best course of action for you.

SGreen

Most of our "emergency savings" are in cash isa's with no tie in and we both contribute a reasonable amount to pensions. We also have a personal "high interest" regular saving account with HSBC (6%).


The kids have a junior isa each.


I think you're right, it is the stocks and shares that represents the best route although my wife is a little unsure as she considers it a risk. My attitude is that we can afford to take a bit of a risk.

SGreen

Thanks both. I feel like I've got a reasonable handle on financial things but wanted to check in to make sure I'm not missing something very obvious.

50/50 on mortgage / stocks and shares isa is probably the way to go.

webnibbler

SGreen wrote: »

Most of our "emergency savings" are in cash isa's with no tie in and we both contribute a reasonable amount to pensions.

Out of interest what do you contribute to pensions as a percentage of your salary? Many of my colleagues at work are contributing between 3% - 5%. But I just don't think this is going to amount to enough, unless they're on a very high salary and plan to cut their living expenses drastically in retirement.

I have upped mine to 30%. Having kids and a mortgage this is a stretch but doable if it means a securer future.

jimjames

SGreen wrote: »

Thanks both. I feel like I've got a reasonable handle on financial things but wanted to check in to make sure I'm not missing something very obvious.

50/50 on mortgage / stocks and shares isa is probably the way to go.

If your employer matches pension contributions then it makes sense to pay the maximum that they match if you can afford it.


I'd also look at moving your money out of cash ISAs to current accounts to get better interest. Or move the cash ISAs to S&S ISAs and use regular savers with your new money to build up the cash again, you'll get up to 6% with that option.

xylophone

With rates on cash isas so poor, have you considered the high interest current account(s) route for your emergency money?

HardCoreProgrammer

Agree that pension is the best way to invest if a. you are higher rate taxpayer and expect to retire on lower income or b. your employer makes matching contributions, but please be aware that you will not be able to get it out in an emergency.

Please be aware that investing in stocks and shares carry risk. The risk of capital loss in the long-term is low, but a higher risk is that you need to cash in when the investment is under water. So make sure you have ample emergency funds.

You are a couple, so you can have 3 Santander accounts sheltering up to 60K, and the interest after cost is still more than 1.8%. With the risks to stock markets on the horizon (e.g. another recession, China, US increasing interest rates, etc.), personally I would just pocket the guaranteed gain in interest, and not touch stocks and shares at all.

colsten

HardCoreProgrammer wrote: »

You are a couple, so you can have 3 Santander accounts sheltering up to 60K, and the interest after cost is still more than 1.8%.

This is true but why on earth would anyone want to do this if they can get more interest on more money in other accounts? The Santander 123 is the option for lazy and/or clueless savers. Merry Christmas.

HardCoreProgrammer

With 2 young children, I suppose OP may not have too much time opening various current accounts which gives better rate for 2.5K and have to move after 12 months? Just a thought.