# My investment options



## barrenwuffett (1 Jan 2018)

I am 36 years old in permanent teaching job. My partner is 30 with a similar job. We are two years into a 30 year mortgage with about 255k to pay on it. The house is worth about 360k. We are on a variable rate 3.1% mortgage with KBC.

In the last two years since we started paying the mortgage we have saved about 20k. We don't have children but hope to in the near future. In terms of the extra money we are saving what would opinions be on the best investment over the next few years

1. Pay off as much of the mortgage as we can

2. Pay into AVCs to top up pension

3. Invest in a managed fund

4. Something else

Thanks


----------



## Brendan Burgess (1 Jan 2018)

Pay off the mortgage. You get a tax-free return of 3.1%. 

You get the LTV down which may help you negotiate a better rate on the whole mortgage. 

When your expenses rise, you may well be able to extend the term of your smaller mortgage and reduce the monthly repayments. 

Brendan


----------



## barrenwuffett (1 Jan 2018)

Thanks Brendan. Is there an advantage to paying off a monthly overpayment or can I just pay a lump amount off it when I have it?


----------



## Brendan Burgess (1 Jan 2018)

I was replying to the "what should I do with the €20k" question. The answer - pay it off your mortgage. 

If you increase your monthly repayments, you have to make sure that you are not bound in to the higher repayment in case you want to stop overpaying. 

Brendan


----------



## Gordon Gekko (1 Jan 2018)

Hi Brendan,

I would disagree.

In my view, the €20k should be held in cash to cover emergencies (and with one eye on the potential arrival of children).

Thereafter, I’d throw the ongoing surplus cashflow at the mortgage.


----------



## Brendan Burgess (1 Jan 2018)

What emergency? 

Both are teachers so their income is secure. 

They will get 9 months' notice of the arrival of the child and can start saving then. 

They have surplus income anyway. 

May I put it to you like this Gordon. If you had a mortgage of €235k and no cash. Would you borrow €20k @3.1% to have on hand in case of emergencies? 

Brendan


----------



## john luc (1 Jan 2018)

some mortgage company' allow you to pay off a lump sum and then in the future draw it back out.


----------



## Boyd (2 Jan 2018)

While I agree with @Brendan Burgess in principle re@ mortgage, I think a couple of side points may be relevant:

This 20k - is it your entire life savings, such that if you paid it off the mortgage, all savings and current accounts be pretty much empty? If so, I would not pay it all of the mortgage, as you need to have money on hand for unexpected bills such as boiler servicing, car servicing etc etc. Think those Wonga/Quick Quid "The boiler's on the blink" adverts....e.g. if you paid the E20k off mortgage today and got E2K car service bill tomorrow, what would you do?

Do you hope/expect to have any access to this money back "over the next few years"? If you have any thoughts of needing it back for home improvements/other expenses, I would not pay if off the mortgage, as getting it back would be difficult.

Hence, I'd suggest paying E15K off mortgage and hang onto E5K as a float of cash on hand.

As I said, I agree with paying down debt ASAP, but as part of overall financial situation, not in isolation.


----------



## barrenwuffett (2 Jan 2018)

Thanks guys. Some good points here. My live savings went into a deposit for our house. We've saved the 20k in about 26 months since we bought the house so are saving pretty well at the moment.  I'd agree keeping a few thousand for emergencies is probably prudent and pay the rest off the mortgage.  As we are saving quite a bit it shouldn't take us long to get enough together for home improvements if these were needed in the future.


----------



## Gordon Gekko (2 Jan 2018)

Brendan Burgess said:


> What emergency?
> 
> Both are teachers so their income is secure.
> 
> ...



Hi Brendan,

Happy New Year.

I am a strong believer in having a cash reserve; I would not borrow to have one, but I would not use my emergency fund to pay down my mortgage. Access to cash has a value.

Gordon


----------



## barrenwuffett (4 Jan 2018)

So would there be an advantage to paying off straight away or keep saving for a number of years and then if there is still a big cash surplus paying off a larger amount then? 

When paying off a large amount do you have an option to reduce the term or reduce the monthly payments and if so which is preferable? 

Thanks


----------



## Horatio (4 Jan 2018)

If I was running a monthly surplus after bills I would invest the full 20K with Fundsmith.co.uk in their accumulator fund & continue to save my monthly excess.
https://www.theguardian.com/money/2017/dec/30/terry-smith-fundsmith-beat-market-2017

I have no professional or commercial affiliation with those folks btw.


----------



## Boyd (4 Jan 2018)

barrenwuffett said:


> So would there be an advantage to paying off straight away or keep saving for a number of years and then if there is still a big cash surplus paying off a larger amount then?
> 
> When paying off a large amount do you have an option to reduce the term or reduce the monthly payments and if so which is preferable?
> 
> Thanks



Pay whatever you can off now, as that will reduce the interest from now. There is no benefit to having 20K now, doing nothing, saving another 20K and then paying 40K in say two years. All that means is that you will still be paying interest for the 2 years on a larger principal.

When paying anything extra off mortgage, the default by most banks is to reduce the monthly payments. Generally this is preferable to you, as it means you don't touch the original loan agreement term. The end result is the same - you save on interest.


----------



## Sanparom (4 Jan 2018)

From a totally different perspective - if you want to have kids in the near future, I'd keep some by, just in case you end up needing fertility treatment. It doesn't come cheap and this is a very real reality for a lot of people nowadays. Hopefully you won't need it, but I'm just looking at it sensibly from another angle, since you mentioned you want to have kids soon.


----------



## barrenwuffett (7 Jan 2018)

I read about this guy before and he certainly seems to be performing well. Investing some money in a well performing portfolio like this might be an option. There are no issues investing money from an Irish bank into their fund?


----------



## barrenwuffett (7 Jan 2018)

Sorry that's the fundsmith Terry Smith fund I was talking about - The system wouldn't let me quote there.


----------



## Sarenco (7 Jan 2018)

barrenwuffett said:


> Investing some money in a well performing portfolio like this might be an option.


Past performance is not indicative of future returns...


----------



## Horatio (8 Jan 2018)

Understood. Should not be able issue. Opening the account takes a couple of weeks to process. Funding the account is a piece of cake. We used transfer wise accounts in gbp.

Purchase transaction was also a piece of cake over the phone or online. We have not made any sell and cash outs yet so cannot comment on that part. Performance since 2010 inception is excellent.


----------



## Tolkaboy (18 Feb 2018)

I'm in a similar situation. I'm a teacher and my wife is a Special Needs Assistant. If I invested an extra €20,000 a year on paying off my mortgage I'd hopefully be finished paying it in 10 years. However if I invested the same amount in an index fund which can earn an average of 10% annually I could have €361,000 saved after 10 years - about €60,000 more than what I have left on my mortgage. However if I was to sell my investment I presume I'd lose 41% on CGT. Would the €361,000 only really be worth 59% of that money? Or is there a more tax efficient way to draw down the money?
In other words: At these rates is it better to pay off the mortgage or invest in the index?


----------



## dub_nerd (18 Feb 2018)

Tolkaboy said:


> I'm in a similar situation. I'm a teacher and my wife is a Special Needs Assistant. If I invested an extra €20,000 a year on paying off my mortgage I'd hopefully be finished paying it in 10 years. However if I invested the same amount in an index fund which can earn an average of 10% annually I could have €361,000 saved after 10 years - about €60,000 more than what I have left on my mortgage. However if I was to sell my investment I presume I'd lose 41% on CGT. Would the €361,000 only really be worth 59% of that money? Or is there a more tax efficient way to draw down the money?
> In other words: At these rates is it better to pay off the mortgage or invest in the index?



By my reckoning, €20k per year invested monthly at an annual rate of 10% only yields €341k. Presumably you would only pay 41% on the profit of €141k. But you also have to factor in the additional interest on your mortgage over that time.  It should be pretty easy to calculate which approach is better. But also bear in mind that investment returns aren't guaranteed and even if it averaged 10% it makes a big difference whether the bigger returns are near the start or the end. I'm guessing the combination of risk and return would favour paying off the mortgage, but run the figures to find out.


----------



## cremeegg (18 Feb 2018)

Tolkaboy said:


> I invested the same amount in an index fund which can earn an average of 10% annually I could have €361,000 saved after 10 years





dub_nerd said:


> By my reckoning, €20k per year invested monthly at an annual rate of 10% only yields €341k. Presumably you would only pay 41% on the profit of €141k.



Guys may I suggest that you are out of your depth here, and at least one of you cannot count.

Talk about  "an index fund which can earn an average of 10%" is not serious. If you don't understand that, keep away from investing. 

A *guaranteed and after tax return *of 3.1% from paying off a mortgage is a serious possibility.

Maximising the tax shelter available for pension contributions is also worth consideration.


----------



## dub_nerd (18 Feb 2018)

cremeegg said:


> Guys may I suggest that you are out of your depth here, and at least one of you cannot count.


That's why we're here. Feel free to help.


----------



## john luc (19 Feb 2018)

Form my experience paying off the mortgage is the best option at this point in your life as it allows you to save paying the 3.1% After tax interest. Check with your mortgage company about any snaky terms and conditions they might have. As time moves on and you keep to your current mortgage payment schedule you will seriously shorten your mortgage time.


----------

