The rest I would put into the stock market. You have 6+ years until the kids are in college and over that kind of timeline the stockmarket makes the most sense to me.
The rest I would put into the stock market. You have 6+ years until the kids are in college and over that kind of timeline the stockmarket makes the most sense to me. You can use an online provider like DeGiro to put a few hundred a month into something like an S&P500 or MSCI World index ETF,
I did caveat my point by saying that it depends on the OP's risk profile, which they have not provided. Obviously if they are risk averse then it would not make sense for them, however if they are even somewhat risk tolerant I would still put my money in the stock market every day of the week.That's a daft idea for the risk profile of the OP and small amounts involved.
Over that horizon for equities there are exit and entry costs, tax on gains, risk of losses, and fees along the way.
But their horizon isn't 5 years. They will continue to build savings, salaries will increase, maybe they get some windfalls along the way. Their first child hits college in 6 years, they'll want to spend a portion of their savings at this point on college fees, rent etc but there are three kids who will be in college for say 4 years each, so they shouldn't be spending more than say 9% of the college costs in that year, another 9% at 7 years from now, then 18% the next as two of them will be in college etc. Their time horizon for a very small portion of their savings is 6 years, for a good portion it's >10 years. If they were saving to buy a house in 5 years so would be taking all the money out in one go then you'd be bang on, but in their case they're looking to draw down savings over an 8 year period that doesn't start for 6 years.@Zenith63
I looked up annual inflation-adjusted returns for the S&P 500.
Over a five-year horizon the maximum annual return was +33% and minimum was -13%. Median return was 7% with a SD of 8%.
If you have cash to play with and plenty of time then equities have historically made you a lot of money.
But with the OP's time horizon, limited funds, and circumstances I would say it is far too risky.
Out of interest, what is the inflation adjusted return on say the 5-year government savings bonds? If inflation is eating away the average 4/5/6/7/8% growth of the S&P500, then presumably the 0.98% return from the savings bonds must virtually guarantee you'll lose money when adjusted for inflation?The minimum historical inflation-adjusted return for both a 10- and 20-year horizon is also negative (although not as much). This is presumably before fees, which will make it more negative.
Out of interest, what is the inflation adjusted return on say the 5-year government savings bonds? If inflation is eating away the average 4/5/6/7/8% growth of the S&P500, then presumably the 0.98% return from the savings bonds must virtually guarantee you'll lose money when adjusted for inflation?
I think this was my rationalle in using the additional funds for overpay vs savingOut of interest, what is the inflation adjusted return on say the 5-year government savings bonds? If inflation is eating away the average 4/5/6/7/8% growth of the S&P500, then presumably the 0.98% return from the savings bonds must virtually guarantee you'll lose money when adjusted for inflation?
Yeah quite a reasonable conclusion. I think what you have to factor in is that if you over-pay the mortgage, you cannot get that money back out if you need it. So with such a low lending rate, you may as well maintain your flexibility by holding onto the cash. If rates stay low then you'll have 20 years with a nice safety cushion of cash that might even earn you a few shekels, if rates go up then you can choose to pay off a chunk of the mortgage there and then. Going through a similar debate myself at the moment...I think this was my rationalle in using the additional funds for overpay vs saving
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