fairly niche investment - decent for "diversifying" a portfolio a bit from the normal. More common in US.
Wouldn't be the first port of call for most investors.
Stock market tracker funds
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fairly niche investment - decent for "diversifying" a portfolio a bit from the normal. More common in US.
Wouldn't be the first port of call for most investors.
I spoke to an IFA in Yorkshire and he said they're "reit good".
(I'll get my coat).They're not a bad thing, arguably allows for a bit more sensible exposure than pot committing a huge chunk of your portfolio to a more leveraged and less diversified bet on just one or two BTL properties.
Clearly, if you have good tenants in a BTL and the property market does well then perhaps BTLs can pay off nicely, especially if you're buying some high yield, student accommodation up North etc.. but you're also arguably exposed to more risk there.
REITs perhaps are perhaps a bit less leveraged than the typical amateur BTL investor and there is less of a worry of some individual rogue tenant causing you massive headaches + unless you're a multi-millionaire then a BTL or two can mean your investments are rather overexposed to property to the tune of some mid-high six-figure sum and whereas with a REIT you can simply have a smaller portion of your overall portfolio exposed to property and you've got an easier exit too if required + you can easily get exposure to say commercial property etc.. some of which might well be otherwise out of reach to you as an individual investor.
I don't think the market for them is as (relatively) large as it is in the US but I guess that might change.
Soldato
Posting purely so it dots the thread icon...
To give some content, I hold 10 funds, primarily UBS S&P 500, Lindsell Train Global Equity and ASI Global Smaller Companies.
To give some content, I hold 10 funds, primarily UBS S&P 500, Lindsell Train Global Equity and ASI Global Smaller Companies.
Soldato
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I avoid because I already have exposure to UK housing stock through my ownership / mortgage.
Generally speaking, people put far too much in property as their main residence, which is more of a liability than an asset since it produces no income but costs money to maintain / tax.
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When I asked about Reits, it was mostly in reference to potentially putting a small amount of money into a REIT ETF. Assumed it is a sensible way to furthet diversify portfolio which it sounds like it is?
Slight side track to the conversation, but what’s the general view of putting money into a tracker vs. Paying down debt.
Having completed some limited reading, feels like it comes down to appetite for risk and the interest cost of the debt, but never seems to consider the monthly impact of debt payments.
A good example might be a large 0% credit card balance of £9000.
Would you invest the £9000 and pay the monthly £220 or clear the debt?
Having completed some limited reading, feels like it comes down to appetite for risk and the interest cost of the debt, but never seems to consider the monthly impact of debt payments.
A good example might be a large 0% credit card balance of £9000.
Would you invest the £9000 and pay the monthly £220 or clear the debt?
Depends on the return you'd get on your investments Vs interest rate you're paying, no? I always pay off credit cards in full, but I extended my mortgage and don't overpay or anything so that money could instead go into investments. Tracker funds are giving me a higher rate of return than the 1.7% odd that the mortgage costs, so overall, am ahead.
I guess there is where I struggle.
Doesn’t it depend on the level of mortgage vs level of investment? If your mortgage is 300k but investment only 50k, is there an argument to reduce the mortgage or do you ignore the cost of repaying the capital when making that decision?
Or is the real driver interest rates only - pay down mortgage or debt to the extent the interest is low (don’t do it at 90% LTV) and then invest with long term growth in mind.
Again I guess it comes down to if you can afford the capital repayments, before then assessing the merits of paying down or investment?
Not asking for advice here - just genuinely intrigued by thoughts.
Associate
You'll get different responses however its down to your circumstances and whether you'll end up paying high interest on that 9k. Ideally you put 100% into a tracker and it performs well(!) and you pay it off in full the day before you start paying interest but it's down to your income/expenses.
Well like you mentioned it comes down to risk and whether your gains from the investment will (or likely will) exceed the interest on the debt... in the case of 0% interest on debt it is a bit of a no brainer for any investment with a fixed or guaranteed return (at least assuming it is accessible by the time the 0% period is over), unless you're so short of cash you can't afford any mandatory payments.
On the other hand, a tracker (or stock market investments in general) perhaps aren't a good idea to be relied on if you need access to the money in the short term, the expectation might be that the tracker will perform well in the long run but in any given year it might be down and if you were reliant on that investment to clear your credit card debt then you might not wish to take that risk, alternatively, if you have other funds available then you perhaps don't care and again 0% interest is a nice freeby so no reason to pay it off when your money is better utilised elsewhere...
If you can get a better rate then yeah it could be better to overpay, otherwise no, if you're earning more with your investments then overpaying your (lower rate) mortgage is going to cost you.
Super simplified example where we ignore taxes, remortgaging costs and pretend interest applies annually:
Assume you pay 3.5% on your 300k mortgage and earn 5% from your 50k savings (we got in a time machine back to the 00s), well that's -£10,500 + £2,500 = -£8000
whereas if you paid it off and had a £250k mortgage at 3.5% then that would be -£8,750
however, if the mortgage rate improved by paying off the 50k that could change things, supposing paying it off means you only pay 3%, well your £250k mortgage now only costs -£7,500 so better than keeping it at 300k at a higher interest rate + the 50k savings.
(obviously, that is super simplified for the reasons mentioned but also other things might come into play - for example, if there is a significant change perhaps that you might want to use that money in future. Some mortgages are flexible with overpayments and you can get the cash back out, others aren't and you might need to then arrange to drawdown on the mortgage, give justifications for why you want the money etc.. and potentially face a higher interest charge on that amount... all of which would be avoided if you simply had it sat in your savings account instead.)
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Apologies - didn't answer this, but dowie's response above illustrates it better than I could! I only look at the interest here when considering, but this is on the basis that I don't immediatley need the capital and am (personally) confident that mortgage rates won't jump to an unaffordable level anytime soon (and not to the point that means I lose money in investments). I always did want to overpay my mortgage, but my mom (who is pretty clever/used to be senior in general banking) was quite clear that it was a stupid move (for me) to do it since I had cheap money essentially which was better served in investments. Naturally that can go up and down etc. so if you need the money, especially short term, it may not be worth it since the rate of return increases over time really and if you're forced to sell when it's down, then you'll be making losses. If you don't though, and can afford to keep it there and ride through any dips in the market, then overall, view was that it's better.
Cheers guys, it’s interesting to hear and examples do make sense.
Ive always had the concept of being debt free as a best place to be (which is not a bad aspiration in itself), but it’s clear there is another layer of how to achieve that goal and maximise earnings in the way there
Ive always had the concept of being debt free as a best place to be (which is not a bad aspiration in itself), but it’s clear there is another layer of how to achieve that goal and maximise earnings in the way there
It is an antiquated strap line tbh. Financial education in the UK is pretty subpar so I don't think any of us are directly to blame for not knowing some of this.
It should be more like "leverage good debt, get rid of bad debt". A 30 year mortgage on ~1.2% is not bad debt. Paying your car insurance monthly is a very bad debt. The one that toes the line is student loan debt as it can be good or bad depending on your life plan.
As with all these things, you need to set out a bit of a strategy earlier on. Unfortunately most people are still trying to work out what to have for tea next so planning a retirement strategy at age 25 is just not on the cards
Lots of questions.
How long is the CC balance 0%? Do you have the cash to pay it off? Do you have extra cash to pay it off if you invest the 9000 and the market collapses the week before the 0% finishes?
What is your aim? Being debt free is a good goal in itself...while in purely monetary terms, it makes sense to invest the 9000 because you should be able to beat the 0%...you may prefer to simply wipe your debt out and maximise your monthly disposable income, which can then start going into investments.
My student loan only has about a year left, I keep toying with paying it off early just to get that net takehome payrise, doesn't make much sense though when market returns are good and debt is cheap.
If you want to spice this up a bit, get yourself a Curve card and front the transaction. I paid off my student loan (although it was a Plan 1, low interest one) using Curve linked to a 0% credit card.
Associate
I have started doing the odd bit of investment with Primary Bid. They are quite speculative as it's companies that are looking for investment before going public .
Some want minimum £500 investment, some £250, it's variable dependent on the company.
I have a Share Dealing account with Halifax which these shares will go to as it's essential to have a brokerage to trade. They charge something like £9.50 per trade.
For the safer bet , I have a Santander Investment account which has lists of mainly large well established companies you can invest in . Most banks have this kind of thing where you can direct debit a certain amount per month to your investment account and have it managed by someone experienced.
My local area has a branch of NFU Mutual which has investment services as well as Insurance so I had considered asking them for advice
I've also got a direct debit to Pension Bee and have transferred previous workplace pensions to it.
Some want minimum £500 investment, some £250, it's variable dependent on the company.
I have a Share Dealing account with Halifax which these shares will go to as it's essential to have a brokerage to trade. They charge something like £9.50 per trade.
For the safer bet , I have a Santander Investment account which has lists of mainly large well established companies you can invest in . Most banks have this kind of thing where you can direct debit a certain amount per month to your investment account and have it managed by someone experienced.
My local area has a branch of NFU Mutual which has investment services as well as Insurance so I had considered asking them for advice
I've also got a direct debit to Pension Bee and have transferred previous workplace pensions to it.