Should I cash in my endowment?

jeff1004

Hi everyone,
I have a unit linked with profits endowment that ends in Nov 2018 that we took out in 1993 at £50 a month to repay £30,400. this was mis sold after 9 years we had to up it to £105 and a futher top up of £10 a month. We already tried the miss sold route and the Ombudsman said we were time barred, gutted! that behind us the policy today if we cash it in is worth £36,500. there is no terminal bonus attached and no early surrender fee. when we moved 15 years ago we put the rest of the mortgage on repayment, later had a loft conversion done at £25,000 added to the mortgage but extended by 5 more years to make it more affordable.
The current debt owed last month is £57,000.Finishing in 2023. We are paying just under £500 a month for the mortgage of which about £200 is interest.
My question is this do I cash in my endowment and pay the £36,500 off the £57,000 now saving me interest payments of about £100 a month, or keep paying the endowment and hope it makes more than the interest I would pay until Nov 2018.
The endowment units are worth just over £16 each each £1 up or down in unit value is worth about £2,500.
A good chinese friend who is good with the stock market globally etc says that about every 10 years there is a market CRASH! starting later this year but very likley by 2018. It has happened about this time historically. if unit prices crash when our endowment matures it may be worth a lot less.Prices have been rising steadily over the last 8 years.Thanks in advance for your advice.

Kind Regards

Jeff

dimbo61

Well if you pay £36,500 off now you will only have £20,500 left.
This will mean you pay much less interest and also save the £105 endowment payment each month.
If you overpay the mortgage by £105 each month you will clear the mortgage really quickly and save even more interest.

AnotherJoe

In your position I would, as Dimbo says the maths work in your favour and it removes risk.

You've had a good run in the market and most likely have actually benefited from your "missold" endowment so since you didn't really want one, take the gains now, and continue with what was the endowment payment either into your mortgage or your pension (or an allocation between the two).

dunstonh

A good chinese friend who is good with the stock market globally etc says that about every 10 years there is a market CRASH!

#

he is very wrong. Historically, crashes occur every 3-5 years. We had one just over a year ago.

An economic cycle is around 10 years and a financial crisis averages one every 7 years (8 since 1956).

jeff1004

Hi Thank you for your information, i may have written or explained it wrong maybe not a crash but something significant happens every 10 years. I think he means the next one is due later this year but most likley by next year when our endowment matures. I would not want to risk paying in untill november 2018 and getting the same return or less than it's worth now by cashing it in. I had some historic values sent to me today and are all a snap shot for the fund value on the 1st Feb every year since 2003.= £3269,£5271,£6953,39472,£11422,£12318,£11293,£14899, £26550 1st feb 2011, £19006,£22646, £25814,£29245,£29746, today £36500.
any ideas why there was a massive increace in value during 2010? then a sudden drop in value by 6k in a year?? the fund has grown well since then since last year by 6k. My gut feeling is that there is due to be another big drop in this fund. what do you think?

dunstonh

i may have written or explained it wrong maybe not a crash but something significant happens every 10 years.

A correction is a market drop of over 10%.
A crash is a market drop of over 20%.
We have had two drops in excess of 40% this millennium but that is historically unusual. They tend to be once a generation.

The only thing that is generally around 10 years is an economic cycle. Markets themselves have nothing that cycles around that period.

Interesting fact is that most crashes recover within 90 days. Only a minority go on longer than that and when they do, its typically 12-18 months.

One thing you do know is that you will not know when a crash is going to happen.

any ideas why there was a massive increace in value during 2010?

Bounce period following the 2008/9 crash. One of the best years on record followed that.

then a sudden drop in value by 6k in a year??

After such a big rise, there was a bit of profit taking that caused markets to fall back a bit. We have then had a steady period of growth since then.

My gut feeling is that there is due to be another big drop in this fund. what do you think?

PE ratios are at the upper in the US and a correction or crash is one way to bring them down. The other being that companies increase their earnings and bring it down that way (which in turn tends to increase the stock market values). Lots of potential events this year which markets will not like if they happen, However, if they dont happen then the markets will rise. And then you have all the unknowns. Things that tend to spook markets or cause sudden gains. Pretty much the same as most years to be honest.

dimbo61

Crystal ball time !

AnotherJoe

jeff1004 wrote: »

Hi Thank you for your information, i may have written or explained it wrong maybe not a crash but something significant happens every 10 years.

No, it doesnt, its not clockwork its driven by numerous factors that dont run to a clock or the year of the rabbit or whatever.

I think he means the next one is due later this year but most likley by next year when our endowment matures.

Again, there is no clock.
I would not want to risk paying in untill november 2018 and getting the same return or less than it's worth now by cashing it in.

Well then you know what to do why even ask?

I had some historic values sent to me today and are all a snap shot for the fund value on the 1st Feb every year since 2003.= £3269,£5271,£6953,39472,£11422,£12318,£11293,£14899, £26550 1st feb 2011, £19006,£22646, £25814,£29245,£29746, today £36500.
any ideas why there was a massive increace in value during 2010? then a sudden drop in value by 6k in a year??

Because that's the sort of stuff that happens. Whatever the reason was you can't work forward and find out what will happen in the future.

the fund has grown well since then since last year by 6k. My gut feeling is that there is due to be another big drop in this fund. what do you think?

I think your gut feeling is irrelevant, since you obviously arent a billionaire, so its not working that well

Sell up, remove the risk, the upside for you of selling is bigger than the downside of not selling.

jeff1004

Thanks guys for taking the time to reply, hope you have a good year.