Re-mortgage to invest in stockmarket?

skillboy

All very interesting comments and thanks for all the feedback.

I agree 100% that investments into a low cost index fund and any stock market investments in general should be drip fed in gradually to even out the ups and downs of the market.

That said, if the stock market crashes then that is exactly the best time to invest more. When there is "blood on the street" that is the time to be bolder. As Buffet likes to say "Be fearful when others are greedy, be greedy when others are fearful"!

sendu

skillboy wrote: »

I agree 100% that investments into a low cost index fund and any stock market investments in general should be drip fed in gradually to even out the ups and downs of the market.

Statistically you're better off with the lump sum investment, because the market has gone up more than it has gone down. (And if this wasn't going to be true in the future, you shouldn't invest anything at all.)

Drip feeding is only good psychologically, or if you don't have a lump sum and are investing from your monthly salary excess.

You could argue the case for waiting if you think there's a specific date in the very near future on which a crash occurs. But don't keep waiting. Time in the market will give you more money in the end than timing the market, even if you have the worst market timing in the world and only invest right before crashes.

skillboy

It's true that time in the market is the most important thing.

Mind you statistically there is a bear market every 3-5 years in the USA and the current bull market is over 9 years old already.

If I had a lump sum of cash to invest I would probably only invest about 60-70% of it and wait for the market to crash before going 100% in. There is no better time to pick up good quality stocks or funds when they go "on sale" during a market crash!

sendu

skillboy wrote: »

If I had a lump sum of cash to invest I would probably only invest about 60-70% of it and wait for the market to crash before going 100% in. There is no better time to pick up good quality stocks or funds when they go "on sale" during a market crash!

Sure, this is just the equivalent of having a 60% equities portfolio, with the 40% as cash instead of the traditional bonds. But if you go this route, just do it properly: rebalance to 60% systematically every year. (Or every x months, because you don't know when you've hit the bottom of the crash, or when real recovery has begun.)

If you've taken one of those risk questionnaires and it suggests you should be 100% equities, then maybe don't deviate on the basis of an anticipated crash, because there will always be an anticipated crash.

That said, if you have these fears and thoughts, one would hope the questionnaire wouldn't have told you 100%

Thrugelmir

skillboy wrote: »

There is no better time to pick up good quality stocks or funds when they go "on sale" during a market crash!

Why would people sell quality stocks in a "crash"?

The crash may simply be the bursting of a bubble. Therefore not impacting all stocks equally.

Malthusian

sendu wrote: »

Drip feeding is only good psychologically

And, to labour the point, if you can cure your psychological weaknesses in the space of the period you are drip-feeding over.

Otherwise you can end up with the scenario where after 12 months you have drip-fed your whole lump sum into the market and then the stockmarket crashes on day 366, leaving you in exactly the same psychological position as if you invested the lump sum into the market on day 1 and it crashed on day 2.

The 12 months of drip-feeding does give you 12 months of seeing minor ups and downs, but this isn't adequate preparation for a proper, 2008-style stockmarket crash.

edgex

skillboy wrote: »

I have a UK property worth perhaps £200k with no mortgage. It is let out so the tenant provides me with monthly rental income.

Since UK mortgage rates are so low, does it make sense to re-mortgage the property (e.g. take out £100,000) and use that money to invest in a low cost index fund such as the S&P 500?

The mortgage rate might only be 2% yet the average annual return for the S&P 500 over the past 80 years has been around 9%.

I can't seem to find a good reason NOT to take the actions mentioned above.

Thoughts?

Whats the BTL mortgage rate? What happens if interest rates rise?
Would the rental income, after ALL charges & allowing for voids, more than cover the potential mortgage payments?
Could you cover the mortgage payments with existing income?


"average annual return for the S&P 500 over the past 80 years has been around 9%"
& what has the average mortgage interest rate been?

MaxiRobriguez

80 year average annual return for the S&P includes a lot of ups and slightly fewer downs, but we're 10 years without a down now so the short term average annual return (say next 10 years) is likely to be much less than 9%. We quite easily could be flat for a decade given current multiples and slowing growth.

At this point I'm choosing to hold cash in an offset mortgage which is a de-facto guaranteed return of 2.3%, rather than pop the cash in equities which might get me 4-5% this year before dropping 20% next year.

jamesd

skillboy wrote: »

Since UK mortgage rates are so low, does it make sense to re-mortgage the property (e.g. take out £100,000) and use that money to invest in a low cost index fund such as the S&P 500?

Long term yes but medium term no. The current US cyclically adjusted price/earnings ratio is correlated with a negative return over the next ten years. Better to buy in when the expected return is positive rather than negative.

steampowered

Yes, borrowing at 2% and using that money to invest is a no brainer.

The average long term returns of the major stock markets over the long term is about 7-8% per year.

Obviously you would need to manage the size of the investment to acknowledge the fact that you will face interest rate risk (as your mortgage won't be fixed at 2% forever), that the size of your investment will fluctuate and that you will face the risk of void periods with BTL. All of that can be sensibly managed.

The other key point to make is that filling up your ISA and maximising your pension contributions is an incredibly tax efficient way to invest. Remortgaging and using the funds to fill up your ISA each year and up your pension contributions will save you £££ in tax over the long term.

I do think some of the advice in this thread is overly conservative. If you wanted to be as conservative as some of the other posters, you wouldn't have invested in a BTL in the first place, BTL has risk just as shares have risk. Obviously there is risk involved in any investment that needs to be assessed and managed.