Cash ISA: half a million in 30 years?

earlgrey_3

Aegis wrote: »

If the stock market kept going down for that many years, you'd be unlikely to be safe with cash.

iirc, it was only from the '50s onwards that the smart investor and institutions decided it was better to invest in equities rather than receiving interest. If there was a reversion away from that way of thinking, of preferring to lend to companies rather than taking a share of the profits, I suppose there could be a very long term slide in share prices which would mess my plans up no end. When Henry Ford said "History is bunk" he may have been right.

zag2me

Good discussion here, I think the way to look a it is simply look at the interest rate on your isa and deduct the RPI from that.

Then work out how much its worth in 30 years! 0.75% gains doesn't sound so good

dunstonh

Right, that's it. I am going to buy as many BTL properties as I can (I have one) with the plan to pay off all the mortgages by the time I retire. The rents will be my pension. Rents will more or less keep up with the cost of living, which is great.

Mortgaged buy to lets are higher risk than stockmarket investing. Also the returns have been typically lower and rental yields in the UK are generally quite poor. You have to be an exprienced landlord who can spot the deals or a builder to make any money on property at this time (and really any time in the last 2 years).

If I invest in property sensibly at popular locations, I can't go wrong. I don't care if they fall in value in the medium term (I'll buy more if they are cheap), I not going to ever sell them anyway.

If you dont intend to sell them, how do you intend to pay off the mortgages when the lender asks for the money back?

House prices rose fast in the last 10 years because they were started at a cheap point following a property price crash. Just as the stockmarket has had good runs after a crash.

Sticking all your money into one asset class and hoping its the right one is not the way to do it.

gandalf

dunstonh wrote: »

If you dont intend to sell them, how do you intend to pay off the mortgages when the lender asks for the money back?

By using a repayment mortgage. That's what I currently have on my BTL property. My tenants pay my mortgage. I have enough money in savings to cover for void periods. The property was bought below market price back in 2002. It will be mortgage-free in 19 years.

dunstonh

gandalf wrote: »

By using a repayment mortgage. That's what I currently have on my BTL property. My tenants pay my mortgage. I have enough money in savings to cover for void periods. The property was bought below market price back in 2002. It will be mortgage-free in 19 years.

A repayment mortage is not tax efficient as you cannot offset the capital repayment against the rent. Plus it will increase the mortgage cost and typically nowadays that means the rent would not cover the mortgage meaning you would be making a loss in the yield.

gandalf

That sounds like all statistics with little meaning in real life. It all depends on the specific situation with the specific property. My repayments are covered by rents (and my rents are slightly below market, to ensure minimum voids), my mortgage is getting paid off nicely. Whether it's tax efficient or not, I don't really care. In 19 years time, I'll have a mortgage free property in my hands, well before I retire.

If I can repeat this once more, even better if twice more, my pension is sorted. On top of that my modest company pension (where I don't contribute) and ISA savings will see me through any void periods.

jamesd

gandalf, you do know that the repayment part of a BTL mortgage payment doesn't qualify for deduction from rental income, so it's counted as part of the BTL business profit?

What a BTL investor would normally do is save the repayment part in the company bank account and use it as a deposit on another property, keeping tax relief on the full amount of the first property's mortgage. This approach lets you grow the number of BTL properties faster.

nicko33

dunstonh wrote: »

The FTSE100 maybe lower than it was a decade ago but many people (who are not in trackers) have [more than] doubled their money in that period because of dividends, diversification and rebalancing.

What if one were to have a portfolio of diverse trackers, re-invested dividends and re-balanced?

dunstonh

What if one were to have a portfolio of diverse trackers, re-invested dividends and re-balanced?

Trackers can certainly play a role in some sectors (if you know what you are tracking) but some sectors dont have trackers to utilise (assuming unit trusts are the wrapper of choice here, which is usually the case for the average consumer).

King_Weasel

zag2me wrote: »

Good discussion here, I think the way to look a it is simply look at the interest rate on your isa and deduct the RPI from that.

Then work out how much its worth in 30 years! 0.75% gains doesn't sound so good

That's fine as a rule of thumb for deriving the real annual return on your savings or investment while inflation is low. But it goes wrong at higher inflation rates.

Just for the record you should strictly divide, not subtract viz

[1 + real return] = ( 1 + m ) / (1 + p )

where m is the money return (eg money interest rate) and
p is the inflation rate.

[m and p should be expressed as numbers, not percentages eg 10% is 10/100 = 0.1]

And a gain of 0.75% pa is a lot better than a loss of 0.75% pa, especially over 30 years.