S & S ISA payments v mortgage overpayments

Joey122

Just my 2cents here

jamesd

Joey122, after just five years 600 a month into a stocks and shares ISA returning 12% would lead to a fund size of 49,000. After ten years, 139,000. It's easy to exceed the CGT allowance when moving investments around between funds with this size of investment portfolio if you've had high growth.

Instead of buying outside an ISA you could buy inside a pension, then take a 25% tax free lump sum to do the mortgage payoff after age 55, leaving the rest to grow as a pension pot. But there's no need to pay off the mortgage if you're getting better investment returns than the mortgage interest rate. Remortgaging until you retire and taking the lump sum then would get you a larger pot value. This assumes that you're paying enough extra into the pension that 25% as a lump sum would repay the mortgage. Not unlikely for a higher rate tax payer who wants a good pension value.

Paying off your mortgage may well beat taxable savings accounts. But we're talking about investments here, not savings, and investment returns can be higher. In April 2005 I spent 4,000 buying a fund, paying 5.25% initial charges because I bought it direct instead of via a fund supermarket. It's currently up by 15% over what I paid, a return of 9.8% a year. If I'd bought it efficiently that would be 13.7% annual return. Even when I bought just before a 20% market drop and took close to a year to get back where I started.

sab77

Thank you all for the advice.
To be honest I would say I am normally fairly cautious with money but after reading some posts, Im tempted to maybe go 'interest only' with the mortgage and pile the rest into (hopefully good performing) ISA funds split between myself and the wife for a few years.
Will probably mull over it all for a couple more months yet though;)
Simon

cagey76

Simon, there is a link on here to another thread which was one I started, we are both in a similar situation. I have decided to go for it, and have this week started the S&S ISA's and have just bought my first funds. I do believe the rewards are there (although am aware of the risks), and am prepared to do some work to ensure I am able to make the best choices I can.

Good luck with your ventures.

egamar

cagey76 wrote: »

decided to go for it

I reckon that's fine with your eyes open . I reckon some folks do it with eyes closed and teeth gritted! You seem to be ion the first category! Good Luck!

jamesd

Just don't go in with all the money into a fund that bounces up and down, like the emerging markets funds. For those you have to be able to accept routine ups and downs of 5-10%, drops of 30% for a few months and ultimately the potential to drop to 25% of the initial value if they do what Japan did in the 80s and 90s - it reached 40,000 and fell to 10,000.

No problem at all to have that as part of the investments, though. If it's 10% that 75% loss potential would only be a 2.5% drop in the total value of your holdings. Much easier to deal with. You can still smile if Latin America is up while China is down, or Europe is up while Latin America is down.

China funds will drop to 50% of their value at some point - the problem is knowing whether that's before or after they have doubled in value so you still break even. And whether you took out some of the money before they do it. It's a good idea to think in terms of taking out half or more of any growth each year from a high risk fund like these and putting that into less risky funds. You don't have to do this by actually selling if you're doing regular investing. You just direct the new money elsewhere and that has the effect of reducing the percentage in the high risk area.

cagey76

James, thanks, I'm defintely going to try and diversify the portfolio.

Your post touches on something I was going to ask on here. Some people have been kind enough to share sources of information they use to help select funds, but can anyone recommend a regular source of information re global economies/markets. When the China funds peak and start to drop, which countries are affected ? if the UK has a hard time will the US suffer, or vice versa ? Or is this just general reading ?

jamesd

It really depends on just what's happening. For example, near the end of last week two different things happened:

1. There was bad news for Citibank, a huge US bank. That caused a drop in US and UK because of fears about sub-prime fallout.
2. A Chinese official hinted at postponing private investors being allowed to invest outside the domestic Chinese markets. But not anything about the Chinese government stopping its own plan to invest its huge reserves. So this caused a drop in Asia-Pacific, particularly HK, of some 7-8%. One key comment seems to have been that they were unhappy that by the time it could happen foreigners might have pushed up the prices to rip off the Chinese. Made it look like outright market manipulation to get a better deal for Chinese investors.

At the start of this year a Chinese official prompted the significant global market dip with comments. Lots of political sensitivity in emerging markets and the effects aren't necessarily limited to them, certainly in the few days timeframe.

The better news is that China particularly and to a lesser extent India seem not to depend so much on the US economy so that helps to prevent trouble in the US from being too bad (but it would still be very bad if there was a major recession in the US).

Long term (5+ years) look at economic growth. Medium term look at economic growth and budget surplus or deficit and inflation/interest rates. Medium term the UK is running a deficit and will take a while for that to end, so the Pound is likely to fall. But it probably won't fall as fast as the US Dollar, which has both deficit and people moving away from the Dollar. So a good time to be investing outside the UK, particularly in Euro and other strong currencies, because that exploits the temporarily high Pound supported by high interest rates.

Lots of reading is the answer. ft.com to start. Telegraph and Times to know what other people are being told is good (so you can consider avoiding the herd, or jumping into it for a while). Daily Mail occasionally so you know when an idea is so widely accepted that it's time to get out while the going is good. Market history so you can see what has happened and know what you might see again. Like the normal expectation that a UK bull market can typically cause a drop of 45% in UK share values. Or that one FTSE 100 company becomes essentially worthless once every ten years or so, so the high value FTSE 100 companies are not as safe as they may seem.

You might start with FT Ask the expert. But don't just believe what you read there. Even experts are wrong regularly.

If it all seems like too much work, buy a global growth fund, a European emerging markets fund and a UK equity income fund and let other people worry about the details. And decide whether you want to go with my thought that emerging Europe (Russia, new and potential EU countries) is a good idea or just completely skip that one. It's just my opinion, after all...

Browntrout_2

jamesd wrote: »

If it all seems like too much work, buy a global growth fund, a European emerging markets fund and a UK equity income fund and let other people worry about the details. And decide whether you want to go with my thought that emerging Europe (Russia, new and potential EU countries) is a good idea or just completely skip that one.

I use some Fund of Funds in the Active Managed sector.

I reckon you pay commision twice on these but hopefully you get what you pay for..

cagey76

jamesd wrote: »

If it all seems like too much work, buy a global growth fund, a European emerging markets fund and a UK equity income fund and let other people worry about the details. And decide whether you want to go with my thought that emerging Europe (Russia, new and potential EU countries) is a good idea or just completely skip that one. It's just my opinion, after all...

Funny you say that, bought my first fund last weekend, a global growth fund, manager has a good record, its in Mark Dampiers top 150, and has a good Russian investment which intrigues me.

Cheers again.