Advice re. investing/saving/overpaying mortgage

cornish42

Hi everyone,

I'm hoping for some advice re what to do with my current finances.

I'm hoping to have a small extension completed starting in September next year and to this end have 60k saved at the moment in an Aldermore bank account for this purpose. I'm about to move that to a Zopa easy access whilst I think about what to do with it in the interim. Spiralling building material costs are worrying me so who knows what the situation will be next year so it may not even happen. 

Current situation:
Age 44, not married, one primary aged dependent.
Salary: 41,600 (paying 9.6% in to teacher pension scheme. and have 14 years service. Before this I had a final salary pension scheme for 8 years earning 29k when I left). So after tax etc at the moment I take home just under £2,400.
Mortgage: Fixed at 0.99% until November 2026. Current balance is c. 92k, on a 15 year term. I pay 596 a month for my mortgage. I don't overpay at the moment as I was trying to save a bit more cash for an emergency fund and now interest rates are higher than my mortgage rate, I thought it was better to save it than to overpay?
I have no other savings other than the 60k and no other debts.

I'm not sure what my utilities will be going forward, but right now I have about 1000 left over each month after all bills/food/insurance are paid and I'm frugal with other outgoings.

I've never done anything with stocks or shares and wouldn't know where to start. I'd be looking for low-med risk to enable me to get the best possible return on my money. Any advice gratefully received!

dunstonh

 I'd be looking for low-med risk to enable me to get the best possible return on my money. 

What is your definition of low-med risk?
one persons low risk is another persons high risk

For example, how much could it go down by before you panic and you would pull it out?  (because at some point it will go down and if you hold it long enough it will go down many times, such is the nature of investing)

cornish42

Good question! I think I'll re-phrase that to low risk, I'd start to worry if I lost a few thousand. Again, this is totally new to me so I don't really know what to expect or what I'm looking for.

Exodi

cornish42 said:

Fixed at 0.99% until November 2026. Current balance is c. 92k, on a 15 year term. I pay 596 a month for my mortgage. I don't overpay at the moment as I was trying to save a bit more cash for an emergency fund and now interest rates are higher than my mortgage rate, I thought it was better to save it than to overpay?
I have no other savings other than the 60k and no other debts.

I'm not sure what my utilities will be going forward, but right now I have about 1000 left over each month after all bills/food/insurance are paid and I'm frugal with other outgoings.

I've never done anything with stocks or shares and wouldn't know where to start. I'd be looking for low-med risk to enable me to get the best possible return on my money. Any advice gratefully received!

I don't think I could agree more strongly with something if I tried.

0.99% is incredibly cheap, no reason to overpay when you could just plonk the money in a decent savings account - earn more in interest and it acts as an emergency fund should you need.

As dunstonh points out - many people that think they are up for a 'bit of risk', are the same people that cash in their whole investment because it loses 10% (on paper). 'Medium risk' in my opinion is for money that you will not need for at least the next 5-10 years.

If you'd start to worry if you lost a few thousand (on £60k this is only about 4%) you certainly don't want to be invested in equities, many people saw double digit losses at the start of the year in their accounts.

Albermarle

Good question! I think I'll re-phrase that to low risk,

However you said this 'to enable me to get the best possible return on my money. '

Unfortunately the Holy Grail of maximum return at minimal risk does not exist. To get maximum return you have to go for higher risk investments and hold them long term ( >10 years)
You need to do some reading. These can be a start.
Investing in stocks for beginners: how to get started - MSE (moneysavingexpert.com)
Stocks & shares ISAs: find the best platform - MSE (moneysavingexpert.com)

One point I will make though is that if you stick with mainstream investments, there is no real risk of losing everything even in a so called high risk investment. What we are talking about is potential big drops ( max 50%?) that should  recover in time. So risk is probably the wrong word, these investments are better described as volatile in the short and medium term.
More important to know is when are you likely to need the money? If it is long term/for retirement, then you have time to ride out the ups and downs. If you think you might need the money in say less than 5 to 7 years then avoid investing altogether. In a 7 to 10 year period then probably best to go medium risk. 
Low risk means low return.

Bigwheels1111

I’ve never risked investments.
I just over payed my mortgage, a win on 2 fronts.
Save on interest payments.
Plus rises in property value.
Mortgage free at 42.

cornish42

Thanks for all of the comments everyone. I'll have a read of those two articles @Albermarle, thanks!

MX5huggy

Don’t over pay the mortgage when savings accounts are paying more in interest. 

I was reluctant to invest always focusing on “you can get back less than you put in”

2 basic concepts have got me past this 

Investment risk is almost nonexistent over 10 years plus when using broad based diversified funds (Global Index Trackers).

Global index trackers, provide average returns so I don’t have to do any research follow markets, try picking wining funds (past performance is no indication of future returns) or even harder pick individual shares (you could loose everything doing that). 

grumiofoundation

Bigwheels1111 said:

I’ve never risked investments.
I just over payed my mortgage, a win on 2 fronts.
Save on interest payments.
Plus rises in property value.
Mortgage free at 42.

You don’t gain more from property rises by overpaying a mortgage. 


(Obviously assuming you are comparing to not overpaying the mortgage but investing/saving elsewhere - owning the same property in both cases)

El_Torro

Seeing as you already have an old final salary pension plus the one you are currently paying into it may be worth setting up a private pension. This can be used either to supplement your final salary pensions or to get you to the point that your other pensions start paying out, assuming you want to retire early.

Alternatively you can use Stocks & Shares ISAs. Less tax efficient but more flexible when it comes to accessing your money.

Either way these are still just investments and like others have said the best long term returns tend to come with a fair bit of volatility. If you can’t get over that you’ll essentially be less rich in retirement than you otherwise could be. Remember that stock market losses are only really losses when you cash them in.

Exodi

Bigwheels1111 said:

I’ve never risked investments.
I just over payed my mortgage, a win on 2 fronts.
Save on interest payments.
Plus rises in property value.
Mortgage free at 42.

This seems odd to claim as a win now we have the benefit of hindsight.

Even investing in the most general world index funds over the last decade would have returned about 10% annual 'interest' (f you want to call it that) on your investment.

Unless your mortgage interest rate has remained more than 10% for the last 10 years, your decision was objectively to your detriment - you probaby could have been mortgage free at 40 if not earlier.

Property values rise whether you overpay your mortgage or invest the money, or pay the mortgage off early or not.

Personally I'd be kicking myself rather than encouraging others to do the same.