Isa to pay off part of mortgage

dunstonh

The stockmarket has dropped over the last 4 years (although improved a little over the last 12 months). Any units you bought at the start decline will be worth less now but as the market starts its next climb, these units will get more value.

You shouldnt look at short term declines as a problem but as an opportunity. Get in when its low and get out when its high is the ideal scenario. The crash of 1987 saw a big decline and many panicked and took their money out. 18 months later, the market had recovered so those that stayed in broke even again and those that paid in during the low points made some very nice profits.

Ideally, your ISA shouldnt be in one fund. One fund investing is foolish and has higher risk. A range of funds covering various areas is more sensible.

A cash ISA would be foolish linked to a mortgage for 17 years. The target growth rate would be higher than the average cash isa rate achieved since launch. The interest rate on the mortgage would be more than the cash isa. 22% over 4 years? A half decent equity ISA would have beaten that over the last 4 years.

deemy2004

how could an equity ISa have beaten 'THAT' over the last 4 years when the market is down, and the equity ISAs would also have 1% or more taken out in charges every year. Its easy to pick a fund thats gone up in hindsight when 90% are down.

The capital due for repayment does not change ! as your paying off the interest and pay off the capital at the end of the mortgage so you know what need to be payed off at the end of the loan at the start.

The stock market is not low risk, or even medium risk, it is HIGH risk. If your lucky, and it rises than yes you 'may' beat the 5-6% annual return on the cash ISA's, you may get 7 or 8% averaged. Thats if your lucky.

Now if your unlucky the growth will be less than the amount due for repayment so you will have a shortfall and the nice fund managers will send you a letter telling you that your fund it likely to have a shortfall so its best you top it up or save elsewhere

Now if your very unlucky and their aint any growth ! Well that says it all.

The question is do you feel lucky ?

Do you ?

Or do you want to play it safe like Mr Tortoise instead of racing ahead like Mr Hare.

Picking a bear market rally from trough to peak is no way to make investment decisons for the long-term on !

Yes you can invest in stocks, just as long as your prepared to dump the stocks if the current bull rally runs out of steam and decides its time for the third leg of the bear market, as the future is unknown and the best bet where something like a 17 year mortgage is concerned is to play it safe ! to know that, yes in 17 years time my mortgage will be paid off, as many are painfully learning, only this time they have been luck in that house prices have risen had they not risen, well !!!

Many people in recent years with maturing investments whose aim was to pay off mortgages feel that the only people who actually made money were the fund managers and those that sold them the investment products.

dunstonh

how could an equity ISa have beaten 'THAT' over the last 4 years when the market is down, and the equity ISAs would also have 1% or more taken out in charges every year. Its easy to pick a fund thats gone up in hindsight when 90% are down.

Equity ISA can mean anything from thousands of funds covering all sorts of areas.   So what market do you refer to when you say it is down?  Many markets are down, some are up.

You can pick many funds from the top sellers of 4 years ago and find them in surplus now.     Of course, those that went with trackers wont be but thats what you get if you want cheap

Assuming you mean stockmarkets, you shouldnt consider them for 4 years unless you accept the risk.    So, looking at 4 year performance is pointless.

The stock market is not low risk, or even medium risk, it is HIGH risk. If your lucky, and it rises than yes you 'may' beat the 5-6% annual return on the cash ISA's, you may get 7 or 8% averaged. Thats if your lucky.

It isnt one risk it is a range of risks depending on where you invest.   Plus, you dont need to invest in any stockmarket to have an equity ISA.     Anyone investing short term is taking a risk.  The risk reduces over time.

Also, if you assume you are going to get 5-6% annual return on a cash isa all the time then that is plain daft as well.  I suspect your rate of 22% is inaccurate as well as that assumes 4 years at current rates.   In 2002 a good Cash ISA rate was 4.2%. Majority were getting lower.

deemy2004

In 2001 most ISA's were yeilding between 6.5% to 7% i.e.

Mkt Harboro       7.00%
Dudley BS       7.00%
Coventry BS       6.95%
First Direct      6.85%
Tipton & Cos       6.75%
Nationwide       6.75%
Holmesdale       6.75%
Church House      6.75%
Smile                      6.75%
Principality       6.70%

You could lock the rates in for several years !

Its much easier than you think to get between 5-6% returns on cash-isa's, even today, now you can lock in a cash-isa for 5 years with the halifax at 5.8%. Lock them high, float them low, simple safe strategy.

22% is a CONSERVATIVE compounded figure

Okay what are good funds or investment trusts for long-term, i.e. more than 4 years. Performance need to be able to be backtested 10 years with low volatility.

dunstonh

At the beginning of 2001 rates were higher.  As the year progressed rates fell and continued to fall until mid 2003 when they started to rise again.

In Jan 2001 Smile offered 7.25% on the Cash ISA.  It fell back to 3.5% in 2003.

Okay what are good funds or investment trusts for long-term, i.e. more than 4 years. Performance need to be able to be backtested 10 years with low volatility.

Looking forward is unknown. Looking back and picking top sellers you had Fidelity special situations fund, Liontrust First Income, Invesco Perp Income and many corporate bond and property funds