Advice on Long Term Investing Vs Mortgage Overpayments

PEHsaver

Downfall of many an investor. What do you know that others don't.

Not claiming to know anything that others do not, just looking at a strategy which may be feasible and seeking opinions. If I can get higher than 1.5% returns through investments (obviously not guaranteed but highly likely) then surely my money is better pooled into this that overpaying a mortgage which only guarantees me a 1.5% return.

This was my thought process! also the balance that I owe on my mortgage now will be considerably easier to pay off in years to come with inflation devaluing the £ year by year.

Sarastro

PEHsaver wrote: »

My plan was to keep paying in the minimum increasing pension contributions. However , alongside this do my own personal Investing to grow wealth for retirement in my own way, that I believe can beat a pension.

I was planning to do this in a number of ways such as Investing in Stocks & funds and eventually buying an additional property to rent out. I feel i can make my money work in some way other than just a pension , and ultimately have more control.

I just did some research and If I put £600 a month into my pension now until age 67, over and above my current contributions. It is predicted that my pension value would be £452,000

However, If this £600 a month goes into a fund with an average 6% return (very realistic) , this is estimated to be £1.15 Million! essentially tax free if done through an ISA.

Opinions on this would also be helpful

You need to include the employer and government contributions to your pension fund as well. Any investment would have to do far more than 6% to beat that. You need to think about growth of your capital rather than return because you are young and have time on your side.

TARDIS

MM10 wrote: »

Hi,
I am no expert but can give some layman advice.
I would move emergency fund to Stock and shares ISA. I would use a credit card in an emergency

I completely agree with ValiantSon. I seriously wouldn't do this. It's a very high risk strategy which could leave you with spiralling credit card debt or selling at the bottom of the market in the event of illness, job loss etc, which is exactly why people recommend an emergency fund in the first place. It needs to be liquid, but there are much better cash accounts out there to consider.

PEHsaver

You need to include the employer and government contributions to your pension fund as well. Any investment would have to do far more than 6% to beat that. You need to think about growth of your capital rather than return because you are young and have time on your side.

Thanks for this, the online calculator I used did allow for both of these things, I appreciate these calculators cannot be entirely accurate but I was just trying to get a feel for different long term investment options.

wjr4

PEHsaver wrote: »

So by April 2019 (Age 30) I will have a decent monthly contribution going automatically from my wage. Lets say £350 a month. Giving me an est retirement fund of £129,000.

My plan was to keep paying in the minimum increasing pension contributions. However , alongside this do my own personal Investing to grow wealth for retirement in my own way, that I believe can beat a pension.

I was planning to do this in a number of ways such as Investing in Stocks & funds and eventually buying an additional property to rent out. I feel i can make my money work in some way other than just a pension , and ultimately have more control.

A pension of £129,000 will not be sufficient to live on so you will definitely have to invest elsewhere as well. However, 'beating a pension' is not accurate as it is a tax wrapper which holds investments. You can hold exactly the same funds within a S&S ISA and a SIPP. You also receive 25% of the pension tax-free from age 55 (currently, this will probably rise in line with State Pension Age). If/when you are a higher-rate tax payer, you will also benefit from higher rate tax relief (40%)., making it even more tax-efficient.

Will your employer match your contributions if you contribute more into the auto-enrolment pension?

As mentioned above, please do not invest all of your emergency fund and look at high-interest paying accounts. That is the silliest advice I've seen on this forum in a long time!

PEHsaver

I completely agree with ValiantSon. I seriously wouldn't do this. It's a very high risk strategy which could leave you with spiralling credit card debt or selling at the bottom of the market in the event of illness, job loss etc, which is exactly why people recommend an emergency fund in the first place. It needs to be liquid, but there are much better cash accounts out there to consider.

I also agree. Upon reflection I would not consider putting my emergency fund into my S&S ISA as it could be at an all time low at the point I need to draw some of the funds. I would also avoid credit cards for any emergency which is the reason for having the fund built up in the first place.

PEHsaver

A pension of £129,000 will not be sufficient to live on so you will definitely have to invest elsewhere as well. However, 'beating a pension' is not accurate as it is a tax wrapper which holds investments. You can hold exactly the same funds within a S&S ISA and a SIPP. You also receive 25% of the pension tax-free from age 55 (currently, this will probably rise in line with State Pension Age). If/when you are a higher-rate tax payer, you will also benefit from higher rate tax relief (40%)., making it even more tax-efficient.

Will your employer match your contributions if you contribute more into the auto-enrolment pension?

As mentioned above, please do not invest all of your emergency fund and look at high-interest paying accounts. That is the silliest advice I've seen on this forum in a long time!

Thanks for the advice, this is why I am here, to get opinions from people with more experience and learn! beating a pension was a bad use of words, I think more to have something running alongside it that also performs well rather than having all my eggs in one basket of such, something more liquid.

Unfortunately my employer will not match contributions and will only pay in the minimum required.

I will definitely not be putting my emergency fund into my S&S ISA as i realise it could be at an all time low at the point I need to draw some of the funds.