Investment for Dummies

Big_Dogg

Well I was using “you” in the general sense!

Yes it may well be “playing safe” in the sense that every overpayment is literally money in the bank and god knows what saved in interest payments, but that’s a pretty good ambition for a lot of people, myself included.

chucknorris

FailedTeacher wrote: »

I think investments is something we may stay clear from to be honest - I feel I am looking for shortcuts to wealth but I think that given my current skillet and position - I'm probably best suited to investing in my home for a start.

Your home is an investment, and probably your most important one, especially at this particular point in time! Once you have bought it, paying off the mortgage isn't really investing more in your home, that commitment has already been made. So it doesn't mean that you shouldn't invest elsewhere.

FailedTeacher

Thank you for your reply.

The overpayment Calculator tells me that by overpaying by £100/month (easy to achieve) I can save almost 70k in interest alone and live many years mortgage free.

Yes saving is not the same as earning but I can see benefits from paying this mortgage off as quickly as I can - however making smart investments could be a means to that end.

Plenty of food for thought tonight and I think I'll certainly look into how I can save and maximise every penny of my budget as a starting point.

I don't really know how to get started, I guess I'd love to 'have a go at investing' to get a feel for it then target my learning as that is generally how I go about things.

chucknorris

FailedTeacher wrote: »

Yes saving is not the same as earning .

Saving is not the same as investing! Investing will nearly always out perform saving over long periods, but I accept that you have to remain within your personal comfort zone.

BananaRepublic

FailedTeacher wrote: »

Thanks for your answers Gentlemen and/or Ladies - there is no need to quibble over Mortgage Repayment Philosophy.

We are doing much of bostonerimus' list and think that overpaying is the best way forward - I have another thread about income streams and that is geared towards making as much of overpayments that we can.

I think investments is something we may stay clear from to be honest - I feel I am looking for shortcuts to wealth but I think that given my current skillet and position - I'm probably best suited to investing in my home for a start.

We are young and just getting our first mortgage, interest is 4.8% which is uncomfortably high but that is life for 5% deposit and 5 years fixed interest. Using the OverPayment Calculator I can't see how Overpayments should not be our priority!

I really appreciate your advice, thank you

One way to look at it is if you have cash piling up in a current account, that cash is slowly being devalued by inflation. If instead you put some into a pension, and let's say for argument sake you go for a passive index fund, you will get back tax, and the money will grow over time.

I do disagree with Boston in that active funds can be excellent, but if you want no hassle long term investing, then one of the popular index funds is a good way to salt away money.

Of course another route to investing is to pay off a decent amount of your mortgage, then trade up to a more expensive house. This is less profitable than it was though due to stamp duty.

Big_Dogg

I used to throw chunks of cash at my mortgage. Before I had a baby..

Nothing more satisfying than receiving a letter from mortgage co each time telling me how much time I’d shaved off my term.

And, although it might seem like a ‘sunk cost’ once you’ve done it, it does give you options going forward. We kept our first flat as a btl, borrowing back some of the overpayment effectively to use as a deposit on a house when baby was on way. House in Mrs Dogg’s name so saved many thousands in stamp duty there.

Even if you’re not at that stage yet, paying off will likely give you access to better (or maybe same, though you may be grateful for that in five years) interest rate with a lower loan to value mortgage when you come to renew.

It’s a point of debate whether your house is an investment or not. My view is you haven’t “bought” it til it’s paid off. Until then, you’re basically renting it from the bank.

My only other comment there would be, if you can, think bigger when overpaying. You may not always be able to, the future is uncertain.

On investing, there are plenty of classic investment books. There are no “short cuts”, because getting a decent return takes effort, some tolerance of risk and patience. Not easy depending on your personality. I’ve made plenty of howlers. But I’ve also switched my db pension to a SIPP and made 60% on it over the last 18 months without further contributions. But I’ve taken risks to do that and watched it like a hawk. And compared to some guys on this forum I know very little about finance.

It’s fascinating if you’re interested to learn. No right or wrong answers. Lots of psychology.

I’ll shut up now as it’s a bit sad to be writing so much on Boxing Day morning, no?

Audaxer

FailedTeacher wrote: »

But is there more I could be doing? I understand investments is a long-term game,especially if you are playing it safe and using small sums of money. I am fortunately in a job that pays commission which means I can have extra funds to play with.

Any advice would be appreciated But please bear in mine I am young'un with no experience in investing nor do I know anyone who does so.

Definitely worth investing for the long term and not that difficult if you're investing a regular monthly sum into a low cost passive multi asset global diversified fund. Good examples of these which are discussed a lot on here are Vanguard LifeStrategy funds, L&G Multi Index funds and HSBC Global Strategy funds. The funds come in different versions to suit different risk categories, i.e. a higher percentages of equities means more volatility but likely to have better long term returns, providing you don't panic and sell when there is an equity crash. A good balance is 60% equities and 40% bonds although some people would say if you are in your 20s you should go for a higher percentage of equities - it just depends if you are the type of person that can cope with the higher volatility. You can learn a lot on this forum and on sites like Monevator about these type of funds and the investment platforms you can buy them through and whether you want to invest in them via a SIPP and/or an S&S ISA. Good luck.

Thrugelmir

FailedTeacher wrote: »

I feel I am looking for shortcuts to wealth but I think that given my current skillet and position - I'm probably best suited to investing in my home for a start.

Extremely sensible. There are no shortcuts. Common sense and experience are two of the best fundamental requirements of becoming a competent investor. Start reading and learning would be my suggestion.

atush

To myself, investment would be over-paying my mortgage and adding value to the property. Reduce the amount of overall interest I pay, live more years mortgage free and hopefully sell for higher than I bought the property.

Usually a poor choice of like most yoru mtg is low. Better returns on investment, esp re pensions.

I see now your mtg is riciculously high. So some overypayment could be co sidered. But dont put all of your spare cash there. Your pension,
and a S& isa are also good places to look. You dont say anything about your pension, and should for this discussion.

7) Avoid individual shares, actively managed funds and investment trusts, they are expensive and often risky.

Completely disagree with Boston here. Sometimes an actively managed funds can be a good choice, esp in niche markets. But I generally avoid them if i can find something similar with lower costs.

What i do NOT avoid is investment trusts. I have been investing in them for decades and find them a good choice, and not more risky than many other funds. Some of them have 40 years + records of rising dividends, incl during years of turbulence. They can be an excellent choice.

Thrugelmir

FailedTeacher wrote: »

The overpayment Calculator tells me that by overpaying by £100/month (easy to achieve) I can save almost 70k in interest alone and live many years mortgage free.

What rate of interest are you currently paying on your mortgage?