Shelter from the Storm

Shares are getting hammered these days. Not just shares but cryptocurrencies too. It’s hard to know when things might stop falling. Is today a good buying opportunity or a good time to offload before things get even worse?

The markets right now look like jumping off a diving board and not knowing when you are going to hit the water. It’s that feeling of falling, the terror and fear of hitting yourself hard that paralyses your thinking for a second or two and the total loss of control that you have that fills me with pure dread.

I am fortunate in a way because I didn’t benefit greatly from the boom in tech stocks. I thought that they were overpriced long ago and I avoided them, and avoided them and kept avoiding them. Now that seems like a good decision but it’s not like there any safer options out there for your money.

Shelter from the Storm?

I heard newbie investors wailing about worthless NFTs, and old men with broken SIPPs, after taking the CETVs, did you understand the risks you took, your names written there, you’ve sworn. “come on” you say, “is there no shelter from the storm?”

Where is a safe place for your money in today’s world of deflating asset prices? If you have the money and don’t spend it (if you can avoid that type of inflation) where should you put it?

I’m torn. I could keep up the old strategy of drip feeding into Pensions, LISAs and ISAs. Except I’ve filled up our LISAs and ISAs this year and Pensions risk the LTA for me. I’m not sure on JISAs as I don’t like the idea of giving kids money.

Also, I think that perhaps share prices might fall for some time and some distance – and the difference between valuing a company at a P/E of 12 (as is traditional) and a pie-in-the-sky future P/E of 100 is quite big!

I could build up a cash buffer to invest when things get worse.

Another option that I’ve thought of is to save up to pay off my mortgage. And it’ starting to look like an attractive option.

Paying off the Mortgage – pros

If I paid off the mortgage, I’d reduce my mortgage interest from £200 per month to nothing @ today’s interest rate. But rates might jump to 3% by the end of the year (when the 5 year term is up) and that’s £350 a month (plus capital) saved. (That’s a pretty cert saving I’d be making).

It’s risk free and stress free and I can probably do it.

Whilst I think I’m a good credit risk, the mortgage company might not agree and that can be a faff.

It should be possible to do so without selling many investments that we hold and it might help tidy up our non-ISAs investments up at the same time.

Paying off the Mortgage – cons

The mortgage is about 10% of our net worth and liquidating it would consume a lot of our cashflow.

Also, the return from investments should outperform the interest rate on the pension. A mortgage even at 4% interest is a steal if you can invest and get an 8% return.

Keeping the mortgage (and even switching to IO) and investing into a LISA or SIPP and paying off with the 25% tax free lump sum in 17/20 year’s time is mathematically the optimal way to do it. But I’m just not sure if it’s right for me.

And that’s the dilemma that I have. I am tempted to cash in my chips, quit while I’m ahead and miss the bloodbath.

But maybe selling now will be a missed opportunity to buy at reasonable prices whilst everyone is broke.

The mortgage decision is for December – today’s choices are hard to know what to do.

I don’t want to throw good money after bad, but I have a bit of money right now looking for a home and prices look good. The macroeconomic outlook can’t be that bad, can it?

So, I’m torn. I suppose I am just rubbernecking because there will be lots of people nursing massive losses. All those crypto slash tech bros who made it big will be nursing huge losses – especially if leverage is involved.

I’ve not been so lucky, so I don’t have the same worries.

Thanks, GFF.

12 Comments

  1. GFF,

    Your age, financial security and (financial) nouse- pay off half the mortgage and invest the rest.

    I would normally say invest 100% but we don’t know where we are going with interest rates.

    Cheers,

    Lee.

    Liked by 1 person

  2. Regarding paying off the mortgage. It’s not always about the numbers, it’s also about peace of mind and what makes you feel happy.

    Liked by 1 person

    1. I agree.
      Whilst I don’t like seeing the indices drop 5/10/20% like they have – I’m ignoring the impact it has on my own finances.
      I’m not overborrowed or overstretched by any measure but the safe gain from lower mortgage bills would be nice compared to the gamble of the stock market right now

      Like

  3. Hear you GFF- I’ve gone the other way and borrowed more money to completely do my house up (before mortgage rates started going up). However, paying off your mortgage in uncertain Financial Times sounds like a win to me.

    All the best with your decision,

    Lee.

    Liked by 1 person

  4. I haven’t looked at my S&S ISA most of the year, and stopped reading the news once Russia invaded Ukraine, so it hasn’t bothered me one bit.
    Mortgage rates look like they could go up quite a chunk so maybe reduce monthly investments (but keep them going a little) and hammer the mortgage?
    Or hammer the pension? If you’re not using it in X years, the value right now is essentially meaningless – hence why I don’t record value in my net worth, only contributions for the time being.
    Nice conundrum to have though.

    Liked by 1 person

  5. I bought my first house in 2003 and effectively cleared the mortgage on it in 2008 thanks to a simple lifestyle ( before the family came along ) and lots of overtime. I retained that house and then bought our family home with my partner in 2018 which is also mortgage free now.

    I could have borrowed more against the properties and invested it or bought more / larger properties. However, I like the peace of mind from being mortgage free.

    I’m continuing to make full pension contributions but I’ve stopped making additional ISA investments for now. Instead I’m using a flexible cash ISA in order to “bookmark” my contributions. I’ve tried to not to pay too much attention to recent stock falls but instead I’m trying to take a long term outlook. However, when your investments have dropped by a mid 5 figure sum in 6 months it’s painful.

    Finding a home for “spare cash” is problematic and I’ll likely also treat myself a bit – new bike on salary sacrifice and some other things I’ve deferred. Sometimes we all need some immediate gratification and I’m told it’s my patriotic duty to spend and support our consumer led economy.

    Liked by 1 person

  6. Preserve flexibility by going for an offset mortgage. Begin by filling the offset account. When the time is ripe withdraw some cash for investment. The cost of the “optionality” is likely to be bearable.

    Liked by 1 person

    1. I don’t know if I qualify for an offset mortgage. I’m not a super high earner and my income is artificially suppressed by pension payments.
      I had an offset mortgage and loved it – never ever worried about paying it off.

      Maybe a 3 strand approach:
      1) remortgage
      2) offset
      3) pay off

      Like

  7. I lost my Offset mortgage facility when I Moved house after (LLoyds + TSB) split into 2 entities. Apparently LLoyds couldn’t do them. Being a frugal type I’m wondering if I can claim back the extra interest I’ve been paying for the last 8 years as the original “cost” of having the offset was +0.15% (lifetime base rate tracker) – potentially £5k

    Anyone else given this a go?

    B

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s