Financial investments whilst mortgage rates at 5%
Discussion
Am I right in saying that for most people it would make no sense to build financial investments such as ETFs whilst paying 5% mortgage rates and contributing to a pension?
In other words, if contributing to an auto-enrolment pension and paying a mortgage, and assuming that a cash buffer is maintained, any spare money each month should be paid if not into the pension then into mortgage overpayments?
I had thought that it might be good to trickle some money into a Stocks and Shares ISA each month so that I was building a somewhat inflation-resistant pot that I can access any time for big treats or home improvements. I'm 34 so although I will always contribute enough to get the maximum employer contribution, pension saving over and above that amount is a bit unsexy. I am a higher rate tax payer.
I think I've answered my own question- Increase pension contributions first and foremost to minimise tax at 40%, then mortgage overpayments?
When 'normal' levels of interest apply to borrowing, how do people who have mortgages pay for home improvements, cars etc? Does it go on the mortgage at renewal time?
In other words, if contributing to an auto-enrolment pension and paying a mortgage, and assuming that a cash buffer is maintained, any spare money each month should be paid if not into the pension then into mortgage overpayments?
I had thought that it might be good to trickle some money into a Stocks and Shares ISA each month so that I was building a somewhat inflation-resistant pot that I can access any time for big treats or home improvements. I'm 34 so although I will always contribute enough to get the maximum employer contribution, pension saving over and above that amount is a bit unsexy. I am a higher rate tax payer.
I think I've answered my own question- Increase pension contributions first and foremost to minimise tax at 40%, then mortgage overpayments?
When 'normal' levels of interest apply to borrowing, how do people who have mortgages pay for home improvements, cars etc? Does it go on the mortgage at renewal time?
That's not really what I'm looking to do. What I was thinking is to build a pot which is external to my pension and property and external to my cash savings for some unknown future big purpose. I understand that investments will go up and down and that there will be periods when it isn't a good time to dissolve all or part.
I have spent years building cash savings to buy a house and for most of that time it wasn't very rewarding at all. Inflation has ate it.
I am about to embark on a long mortgage and I probably won't be mortgage free or retired for 25+ years so in the interim I want to avoid the situation where I have piled all my money into property and pension which I can't get at.
If it makes no sense then it makes no sense, that's what I'm trying to determine.
What I'm asking is what to do with any spare money month to month once I've got a cash buffer. Is it basically a no brainer to hove it into my pension because of 40% tax, and if not that, mortgage overpayments?
In this case how best to fund big one-off purchases such as a 'treat' car or home improvement project? Surely if your mortgage rate is going to tend to be higher than savings rates you don't want to be holding more cash savings than you need?
I have spent years building cash savings to buy a house and for most of that time it wasn't very rewarding at all. Inflation has ate it.
I am about to embark on a long mortgage and I probably won't be mortgage free or retired for 25+ years so in the interim I want to avoid the situation where I have piled all my money into property and pension which I can't get at.
If it makes no sense then it makes no sense, that's what I'm trying to determine.
What I'm asking is what to do with any spare money month to month once I've got a cash buffer. Is it basically a no brainer to hove it into my pension because of 40% tax, and if not that, mortgage overpayments?
In this case how best to fund big one-off purchases such as a 'treat' car or home improvement project? Surely if your mortgage rate is going to tend to be higher than savings rates you don't want to be holding more cash savings than you need?
HustleRussell said:
When 'normal' levels of interest apply to borrowing, how do people who have mortgages pay for home improvements, cars etc? Does it go on the mortgage at renewal time?
HustleRussell said:
how best to fund big one-off purchases such as a 'treat' car or home improvement project? Surely if your mortgage rate is going to tend to be higher than savings rates you don't want to be holding more cash savings than you need?
Is the answer cheap credit card or, failing that, mortgage borrowing? HustleRussell said:
ucb said:
Current interest rates are historically not that high.
I know, and that's why using stocks and shares ISAs, for example, might be a better accumulation strategy long term than cash? egor110 said:
That's not how shares work .
They're not like a savings account you dip into whenever you fancy , you buy them then leave them for a decent chunk of time ie 10 years and allow them to grow .
With no guarantee that they WILL grow, especially factoring inflation into the scenario.They're not like a savings account you dip into whenever you fancy , you buy them then leave them for a decent chunk of time ie 10 years and allow them to grow .
Don't think there any guarantees about any form of investments be it Cash , Pensions or Equities /SM but its about having plans that work for you and that you are comfortable with.
Most negatives on here over the past couple of years are always about cash interest being eroded by Inflation rates but that shouldn't stop you having cash if that's what you are happy with.In fairness a lot of Equity portfolios over that period probably also haven't exceeded inflation.
To add to your thinking there are also potential investments into the likes of International Investment Bonds , ISA's and then perhaps the slightly more esoteric into VCT's , EIS's ,KI EIS's and SEIS's where the investment should obviously make sense but then the tax relief claimable back and potential dividend returns can also play a part.
In short , big fan of separate " pots " irrespective of how much is necessarily able to be in pots, how flexible you want to be and indeed how comfortable you are with them.
Most negatives on here over the past couple of years are always about cash interest being eroded by Inflation rates but that shouldn't stop you having cash if that's what you are happy with.In fairness a lot of Equity portfolios over that period probably also haven't exceeded inflation.
To add to your thinking there are also potential investments into the likes of International Investment Bonds , ISA's and then perhaps the slightly more esoteric into VCT's , EIS's ,KI EIS's and SEIS's where the investment should obviously make sense but then the tax relief claimable back and potential dividend returns can also play a part.
In short , big fan of separate " pots " irrespective of how much is necessarily able to be in pots, how flexible you want to be and indeed how comfortable you are with them.
Portia5 said:
egor110 said:
That's not how shares work .
They're not like a savings account you dip into whenever you fancy , you buy them then leave them for a decent chunk of time ie 10 years and allow them to grow .
With no guarantee that they WILL grow, especially factoring inflation into the scenario.They're not like a savings account you dip into whenever you fancy , you buy them then leave them for a decent chunk of time ie 10 years and allow them to grow .
Pension - Don't expect to need the cash until you retire
Mortgage - Don't expect to need the cash until you move house
Stocks and Shares - Don't expect to need the cash for 10 years or so
Fixed rate bonds/savings - Don't expect to need the cash for X years
Savings account/Cash ISA - Might want the cash in the next year or two
Mortgage - Don't expect to need the cash until you move house
Stocks and Shares - Don't expect to need the cash for 10 years or so
Fixed rate bonds/savings - Don't expect to need the cash for X years
Savings account/Cash ISA - Might want the cash in the next year or two
NowWatchThisDrive said:
Portia5 said:
With no guarantee that they WILL grow, especially factoring inflation into the scenario.
...which is also true of every other investment asset class besides index-linked government bonds.I which I hadn't held cash whilst I was saving. Since about 2016 I have been building cash savings thinking "I will buy soon". Eight years later...
This thread's got a bit weird.
Opening an ISA and dripping some money into an appropriate fund that meets your appetite for risk is perfectly sensible.
Using a SIPP or other pension wrapper might make more sense but that's a personal thing.
You can open an ISA with £100 and drip small amounts into it.
Don't overthink it too much
Opening an ISA and dripping some money into an appropriate fund that meets your appetite for risk is perfectly sensible.
Using a SIPP or other pension wrapper might make more sense but that's a personal thing.
You can open an ISA with £100 and drip small amounts into it.
Don't overthink it too much
HustleRussell said:
NowWatchThisDrive said:
Portia5 said:
With no guarantee that they WILL grow, especially factoring inflation into the scenario.
...which is also true of every other investment asset class besides index-linked government bonds.I which I hadn't held cash whilst I was saving. Since about 2016 I have been building cash savings thinking "I will buy soon". Eight years later...
What you're alluding to in bold amounts to timing the market, which almost everyone greatly overestimates their ability to do. How would you feel if rates were to stay higher for longer, yet equity markets continued to rally anyway? That's the scenario where a lot of people could be looking back in years/decades to come and seeing that they got left behind.
Personally I've been fully invested in equities for nearly 25yrs and see no reason to change that. I'm still confident of outperforming the alternatives over the rest of my investing life, but I readily accept that it's more likely to be a zig-zag as opposed to a straight line! Making peace with that volatility and not letting it lead you astray is really what long-term equity investment is all about, and what so many people fail to do. But in practice everyone has their own circumstances, liabilities and gut tolerance for risk, so I wouldn't disparage anyone for taking some off the table if they know all this and it's still the right decision for them.
Well in my case "I will buy soon" was referring to property- but saving cash and putting it in ISAs paying barely 1%, and doing eight years of that... it wasn't paying. However there was no risk exposure so there is that. My pension is barely worth more than the contributions either.
I think what confused the thread is that people may have thought that in true PH style I was talking about significant investments, but the question is really a pretty poultry month to month admin thing. What to do with the odd hundred quid here and there. This is probably a good post for me;
Also I was wondering whether someone was going to say
"Don't be stupid, you're paying 40% tax- you should be whacking the whole lot into your pension"
and / or
"Don't be stupid, you're paying 5% interest on your mortgage- you should be whacking the whole lot on overpayments"
I think what confused the thread is that people may have thought that in true PH style I was talking about significant investments, but the question is really a pretty poultry month to month admin thing. What to do with the odd hundred quid here and there. This is probably a good post for me;
RizzoTheRat said:
Pension - Don't expect to need the cash until you retire
Mortgage - Don't expect to need the cash until you move house
Stocks and Shares - Don't expect to need the cash for 10 years or so
Fixed rate bonds/savings - Don't expect to need the cash for X years
Savings account/Cash ISA - Might want the cash in the next year or two
What prompted my question is basically wondering how people come up with fifteen grand for a car, or tens of thousands of pounds for a large home improvement project. Are these things which the house pays for at mortgage renewal time, or is it other forms of credit, or do people save up? and if people are saving up bit by bit long term, then what is the recommendation for that? Cash savings? Stocks and Shares ISA? Mortgage - Don't expect to need the cash until you move house
Stocks and Shares - Don't expect to need the cash for 10 years or so
Fixed rate bonds/savings - Don't expect to need the cash for X years
Savings account/Cash ISA - Might want the cash in the next year or two
Also I was wondering whether someone was going to say
"Don't be stupid, you're paying 40% tax- you should be whacking the whole lot into your pension"
and / or
"Don't be stupid, you're paying 5% interest on your mortgage- you should be whacking the whole lot on overpayments"
It isn’t easy to offer a blanket answer to that. Much will depend on the individual and their circumstances.
Some people will remortgage to pay for building projects, makes some sense given that typically the work will ads value. Remortgaging to buy a car, a few levels less intelligent. What the populous do is probably a good thing to try and do the exact opposite of given the level of financial literacy in the U.K.
Saving up for an item - if you plan to buy it in 5-10 years time then equities/bond mix etc could make sense. If less than that sort of time period then I think it would be very risky and bonds/cash would make sense. Obviously the next consideration is whether you’ll be paying tax on your savings or not, whether you wish to use an ISA for said savings (though I think today you can now mix and match ISA as announced by hunt?) to avoid taxation etc.
It’s why many on here including me use premium bonds as tax free and I don’t get any savings allowance.
Some people will remortgage to pay for building projects, makes some sense given that typically the work will ads value. Remortgaging to buy a car, a few levels less intelligent. What the populous do is probably a good thing to try and do the exact opposite of given the level of financial literacy in the U.K.
Saving up for an item - if you plan to buy it in 5-10 years time then equities/bond mix etc could make sense. If less than that sort of time period then I think it would be very risky and bonds/cash would make sense. Obviously the next consideration is whether you’ll be paying tax on your savings or not, whether you wish to use an ISA for said savings (though I think today you can now mix and match ISA as announced by hunt?) to avoid taxation etc.
It’s why many on here including me use premium bonds as tax free and I don’t get any savings allowance.
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