Paralyzed with indecision.

MaxiRobriguez

steampowered said:

MaxiRobriguez said:

The Vanguard ISA isn't an appropriate vehicle to "offset" the mortgage. It is a capital at risk vehicle whereas the mortgage is not. At any given point the Vanguard ISA may drop 30, 40, 50% whereas your mortgage cost is fixed. That said, it's not a bad thing you have this ISA, you just may need to be more flexible with it - in that in the future if the balance of it is close to matching a mortgage, then you simply wait out any volatility if you're wanting to pay off the mortgage but the ISA value has declined, which may take years. If you aren't content with being more flexible then the Vanguard ISA isn't appropriate and you should move it to a non-capital at risk vehicle instead. Ultimately the most efficient thing if you choose to do that will simply be to pay down the mortgage, which at 2.8% interest is more than what you will earn in any Cash ISA or savings account. 

Your comparison assumes that you are comparing £200k of mortgage principal against £200k in an ISA.

That is not a correct assumption. The Op is investing money today, so you should be comparing the outcome in (for example) 10 years time. You are not factoring in the returns generated by a S&S ISA.

If the Op overpaid the mortgage for the next 10 years, they might clear £150k of principal (for the sake of argument). If they invested in an ISA instead, they are more likely to have £200k. Over the long term the increase in the value of investments provides the 30, 40, 50% buffer you are talking about - the investment gain gives you that flexibility.

I'm not assuming that at all. The ISA may generated £250k in paper returns with the OP patting themselves on the back for a job well done, but if the market turns down 50% the next day then they no longer have the value to cover paying off the mortgage in full should they wish to - at that point they would have to wait until markets recover.

The fact remains that their ISA portfolio is capital at risk, and does not guarantee any returns unlike paying off the mortgage would. If the OP understands and accepts that risk, then fine, that's their choice. Personally I think it is a wise choice, as it is something I am doing myself (albeit via pension contributions rather than ISAs), but I understand my excel spreadsheet forecast returns are an estimate only and I may need to be more flexible over the long run. Cest la vie. 

itwasntme001

MaxiRobriguez said:

steampowered said:

MaxiRobriguez said:

The Vanguard ISA isn't an appropriate vehicle to "offset" the mortgage. It is a capital at risk vehicle whereas the mortgage is not. At any given point the Vanguard ISA may drop 30, 40, 50% whereas your mortgage cost is fixed. That said, it's not a bad thing you have this ISA, you just may need to be more flexible with it - in that in the future if the balance of it is close to matching a mortgage, then you simply wait out any volatility if you're wanting to pay off the mortgage but the ISA value has declined, which may take years. If you aren't content with being more flexible then the Vanguard ISA isn't appropriate and you should move it to a non-capital at risk vehicle instead. Ultimately the most efficient thing if you choose to do that will simply be to pay down the mortgage, which at 2.8% interest is more than what you will earn in any Cash ISA or savings account. 

Your comparison assumes that you are comparing £200k of mortgage principal against £200k in an ISA.

That is not a correct assumption. The Op is investing money today, so you should be comparing the outcome in (for example) 10 years time. You are not factoring in the returns generated by a S&S ISA.

If the Op overpaid the mortgage for the next 10 years, they might clear £150k of principal (for the sake of argument). If they invested in an ISA instead, they are more likely to have £200k. Over the long term the increase in the value of investments provides the 30, 40, 50% buffer you are talking about - the investment gain gives you that flexibility.

I'm not assuming that at all. The ISA may generated £250k in paper returns with the OP patting themselves on the back for a job well done, but if the market turns down 50% the next day then they no longer have the value to cover paying off the mortgage in full should they wish to - at that point they would have to wait until markets recover.

The fact remains that their ISA portfolio is capital at risk, and does not guarantee any returns unlike paying off the mortgage would. If the OP understands and accepts that risk, then fine, that's their choice. Personally I think it is a wise choice, as it is something I am doing myself (albeit via pension contributions rather than ISAs), but I understand my excel spreadsheet forecast returns are an estimate only and I may need to be more flexible over the long run. Cest la vie. 

Precisely.  Personally I think it is a bit absurd to assume equities (and bonds) will return anything like they have done historically let alone the past 10 ten years.  When the biggest drivers of equity and bond returns have been milked to death, perhaps increasing cash buffer and paying down the mortgage will be seen as optimal (excluding obvious advantages of pension tax relief etc).

I suppose people will see me as a pessimist.  I see it that I am more a realist.

Albermarle

I suppose people will see me as a pessimist.  I see it that I am more a realist

The general tone on the forum for at least the last 12 months is do not expect the next 10 years to be like the last .

Consensus seems to be that a typical 60:40 portfolio might only produce 1 or 2 %  above inflation , which I think is probably realistic enough.

Dr0o

Thrugelmir said:

Which fund are you investing in? 

Vanguard Lifestrategy 80%

thegentleway said:

You only need to invest £270pm when you're 30 to become a millionaire by the time you're 65.

Is this really all it takes? That's awesome, as aggressive as my savings rate has been, £1,000,000.00 on my income seems insurmountable lol. 

bowlhead99

Dr0o said:

thegentleway said:

You only need to invest £270pm when you're 30 to become a millionaire by the time you're 65.

Is this really all it takes? That's awesome, as aggressive as my savings rate has been, £1,000,000.00 on my income seems insurmountable lol. 

Assuming you get a 10% annualised return, which is very optimistic unless inflation is through the roof: yes that's 'all it takes', though you would need to recognise that £1,000,000 in 35 years will not buy the same as it would buy today; assuming inflation at 2-3%, your £1000,000 would only be worth £350-500k in today's money.

Although perhaps thegentleway is assuming a more realistic annual rate of return but recognising that at age 30 you are already starting with some pension money and some equity in your home etc.

Dr0o

bowlhead99 said:

though you would need to recognise that £1,000,000 in 35 years will not buy the same as it would buy today; assuming inflation at 2-3%, your £1000,000 would only be worth £350-500k in today's money.

I knew inflation had an impact, but not THAT much of an impact, that's quite disheartening, but also helpful to know. That makes it blatantly obvious that saving for the future is critical. I don't even want to think of the disaster of not utilising pensions and investing over the long term.

Murphy_The_Cat

Unless I've missed mention of it - do you have any sprogs ?  If not and you're planning on adding sprogs at a future date, it will drive a horse and carraige through all of your current projections.  Alternatively, if sprogs aren't something that you're looking to invest in, then all seems good.

As a related aside, whilst not perhaps the best investment you can make, clearing your mortgage early and getting that particular monkey off your back is a wonderful feeling.Especially if the economy/your financial situation takes a turn for the worse.

letsbetfair

Two other thoughts. Firstly, you're right that if you have kids saving will get harder. You'll also have a lot less free time, though. If you are hoping to have kids, you might think about spending on some treats that will be far harder to do with kids Secondly, if you're eligible it may be worth opening lifetime ISAs at some point, even if just with a pound or two - in case they're useful in future.

thegentleway

bowlhead99 said:

Dr0o said:

thegentleway said:

You only need to invest £270pm when you're 30 to become a millionaire by the time you're 65.

Is this really all it takes? That's awesome, as aggressive as my savings rate has been, £1,000,000.00 on my income seems insurmountable lol. 

Assuming you get a 10% annualised return, which is very optimistic unless inflation is through the roof: yes that's 'all it takes', though you would need to recognise that £1,000,000 in 35 years will not buy the same as it would buy today; assuming inflation at 2-3%, your £1000,000 would only be worth £350-500k in today's money.

Although perhaps thegentleway is assuming a more realistic annual rate of return but recognising that at age 30 you are already starting with some pension money and some equity in your home etc.

Yeah assuming 10% annualised return (historical rate of return), decreasing by 0.1% per year, capped at 5.5% (If I remember correctly - I stole it from Bryan Preston the money guy on youtube). It's not the most realistic rate of return going forward but it's just to illustrate you are better off investing when you're in your 20s and 30s and paying off your mortgage later (whilst interest rates are so low).

adam06_2

Dr0o said:

bowlhead99 said:

though you would need to recognise that £1,000,000 in 35 years will not buy the same as it would buy today; assuming inflation at 2-3%, your £1000,000 would only be worth £350-500k in today's money.

I knew inflation had an impact, but not THAT much of an impact, that's quite disheartening, but also helpful to know. That makes it blatantly obvious that saving for the future is critical. I don't even want to think of the disaster of not utilising pensions and investing over the long term.

If you look on the bank of England site inflation calculator £1M in 2018 is the equivalent of £301k in 1983 (35 years before) and if you had put in £270 per month for 35 years you will have put in £113k of that... Though if you put the same money in a bank account it would be much worse.

But your earnings  "should"  go up with inflation.. so you will have more to put in.