Interest rate rise?

System

chucknorris wrote: »

I don't disagree, but you said 'decent' not 'better', I would never consider a interest rate that guarantees a loss as decent.

I'd also like to get my money back on demand. And nobody knows where rate rises will end.

chucknorris

Ozymandias73 wrote: »

I'd also like to get my money back on demand.

I don't want my money back, I want it to remain invested and working hard for me.

System

chucknorris wrote: »

I don't want my money back, I want it to remain invested and working hard for me.

I'm more risk averse than you.

chucknorris

Current betfair prices:

1/3 0.25%

5/2 0.5%

michaels

chucknorris wrote: »

I sympathise, we had a 7 figure sum only paying 1.31% at sainsburys bank until we bought our new home a couple of weeks ago. But we wouldn't want a significant sum in savings accounts for longer than the short term, due to tax and inflation reducing the interest paid to a certain annual loss. I'd rather take some more risk on, than accept a certain loss.

But I accept that not everyone has the same attitude to risk.

Depends how you look at the risk - this money is not savings, it is equity drawn from the house and is therefore fixed in nominal terms so any inflation will equally impact the value of the borrowing as the value of the capital. And being a fixed nominal sum, investing it in any sort of risk asset means that if there is a loss then it will no longer be sufficient to pay back the borrowing.

Any interest received over the interest paid is thus profit - ie it is effectively a fixed for floating swap so a rise in interest rates make us profit and a fall potentially puts us at a loss, I do not want to add complexity by investing the capital in a second risk asset.

chucknorris

Ozymandias73 wrote: »

I'm more risk averse than you.

Is that because you are saving for a deposit, and therefore equities would understandably be far more riskier in the short term?

System

chucknorris wrote: »

Is that because you are saving for a deposit, and therefore equities would understandably be far more riskier in the short term?

No, I have rather a lot of cash and I am looking to buy a house as a cash buyer. In the meantime, I am living off some of the interest.

chucknorris

michaels wrote: »

Depends how you look at the risk - this money is not savings, it is equity drawn from the house and is therefore fixed in nominal terms so any inflation will equally impact the value of the borrowing as the value of the capital. And being a fixed nominal sum, investing it in any sort of risk asset means that if there is a loss then it will no longer be sufficient to pay back the borrowing.

Any interest received over the interest paid is thus profit - ie it is effectively a fixed for floating swap so a rise in interest rates make us profit and a fall potentially puts us at a loss, I do not want to add complexity by investing the capital in a second risk asset.

I'm putting my current (older) home on the market next month, hopefully I will sell it in the following year (I have to sell it within 3 years to claim back the extra 3% stamp duty). At which point I will probably be investing the equity mostly in corporate bonds, which will give me a reasonably diversified future retirement portfolio of about:

31% Equities
28% Investment property
21% Fixed pension (DB and state)
18% Corporate bonds
2% Cash

chucknorris

Ozymandias73 wrote: »

No, I have rather a lot of cash and I am looking to buy a house as a cash buyer. In the meantime, I am living off some of the interest.

Surely you meant yes then. We did that (bought a house with cash) a couple of weeks ago, so obviously we couldn't leave that money set aside for our purchase in equities, we had to reluctantly leave it in cash.

EDIT: Saving for a deposit and buying with cash is the same scenario.

System

chucknorris wrote: »

Surely you meant yes then. We did a couple of weeks ago, so obviously we couldn't leave the money set aside for our purchase in equities, we had to reluctantly leave it in cash.

It's not such a reluctant decision for someone who thinks equities may already have peaked or be not far off a peak.