Invest our savings differently or pay down our £350k mortgage?

cjking

Given that you are a 40% taxpayer, any new money going into shares should probably be via a pension.

I would look at increasing pension contributions up to the point I stopped being a 40% taxpayer. This would presumably reduce net employment income. That reduction (of income below spending) could be offset by taking money directly from non-pension savings to cover the spending shortfall, and/or by reducing expenses by paying off some of the mortgage.

(I haven't fully applied brain to this problem, just throwing out some ideas.)

Ray_Singh-Blue

Bowlhead is a clever bloke and I'm sure he is correct but still, every now and again I like to run a little thought experiment where I take every asset and liability and put it in one of two boxes: (1) behaves like a bond, OR (2) does not behave like a bond.

Say I have a £350K mortgage fixed for many years at 4%. To me, that behaves like a £-350K of bond with a yield of 4%. If I also had a defined benefit pension set to pay £20K per year, well that behaves a little bit like a £500K bond with a yield of 4%.

Sure, those things are not actually bonds, but I'd argue they fit better in the bond box than the other box - which contains stuff like my shares and my house.

The reason for doing this is to compare the position now, with the position I actually want. And if they are different, think about how best to change that. I personally think 50:50 is not a bad position. The OP may have a different view, and as far as I can see he has not told us the value of his pensions so it is not possible to estimate his overall position.

bowlhead99

Ray_Singh-Blue wrote: »

Bowlhead is a clever bloke and I'm sure he is correct

Glad we got that bit out of the way :cheesy:

but still, every now and again I like to run a little thought experiment where I take every asset and liability and put it in one of two boxes: (1) behaves like a bond, OR (2) does not behave like a bond.

The solution when faced with the realisation that your mortgage debt does not have the same properties as the inverse of a tradeable bond (for example, giving a demonstrably different outcome in the face of rising or falling interest rates than something whose cash value flexed with those rates) is not to try to force it into a box into which it doesn't fit.

It is to create more boxes.

In OP's position, his mortgage isn't 'fixed for many years' either, it's fixed for two, which is no time at all in the context of a 20-30 year debt or a sequence of decade-long economic cycles.

scoobydoo789

Thanks, this is interesting stuff. Pension has 222k in it. No idea whether that's good or not - another thing I need to look at...

I guess what I have taken from this is that my sense of importance on restructuring the shares as part of this seems correct and could be the priority before the tax year ends

Ray_Singh-Blue

bowlhead99 wrote: »

The solution when faced with the realisation that your mortgage debt does not have the same properties as the inverse of a tradeable bond (for example, giving a demonstrably different outcome in the face of rising or falling interest rates than something whose cash value flexed with those rates) is not to try to force it into a box into which it doesn't fit.

It is to create more boxes.

In OP's position, his mortgage isn't 'fixed for many years' either, it's fixed for two, which is no time at all in the context of a 20-30 year debt or a sequence of decade-long economic cycles.

Scooby's mortgage is not fixed for 30 years, but it could be. And his cash savings could also be fixed for a long time. Or they could both be variable rate. Either way, he could take a £ of one and cancel out a £ of the other. So I'm still comfortable with them sharing the same box.

Scooby - is that £220K of pension a notional value based on the defined benefit you will receive in retirement, or do you have £220K of assets like stocks and bonds in a pension? It makes some difference to whether I'd put it in the box Bowlhead doesn;t like to call "bonds" or the other one

scoobydoo789

That's the value of the investments in the pension funds today

jimjames

badger09 wrote: »

I've never heard of an 'itip scheme'. The nature of the scheme could affect the GCT position, but bowlhead 99 has outlined the basic premise.

I think it's actually Ltip - Long Term Incentive Plan
https://en.wikipedia.org/wiki/Long-term_incentive_plan

badger09

jimjames wrote: »

I think it's actually Ltip - Long Term Incentive Plan
https://en.wikipedia.org/wiki/Long-term_incentive_plan

Thanks jj. I thought it was probably something like that. Still a very bad idea to have so much invested in one company IMHO;)

atush

jimjames wrote: »

I think you need to reconsider your attitude to risk or take some action on the shares. You may have acquired the shares rather than buying them with your own money but to have over 40% of your wealth tied up in a single company shares is definitely not being risk averse!

Depending on your mortgage you may be able to pay off chunks and then borrow it back but not all mortgages allow that. Certain Nationwide ones do.

I agree, you say you are risk averse, but holding onto those shares is super high risk. REad up about Enron?

Sell some (enough to use this years CGT allowance). Find out if you c an transfer some of these to your wife (so she can sell and use her sep CGT allowance). You can in the UK but ont knwo where these shares aree held?

By all means, reinvest in a S&S isa. Use global trackers or even Vanguard mult iasset.

Move some of your 90K cash isas to s&S isas.

Check the costs of refinancing- what penalty would you pay to leave your fixed deal?

badger09

atush wrote: »

I agree, you say you are risk averse, but holding onto those shares is super high risk. REad up about Enron?

Sell some (enough to use this years CGT allowance). Find out if you c an transfer some of these to your wife (so she can sell and use her sep CGT allowance). You can in the UK but ont knwo where these shares aree held?

By all means, reinvest in a S&S isa. Use global trackers or even Vanguard mult iasset.

Move some of your 90K cash isas to s&S isas.

Check the costs of refinancing- what penalty would you pay to leave your fixed deal?

Wot - no mention of pension atush?:p