Sell shares to overpay mortgage?

[Sarenco]

A Lion doesn’t concern itself with the opinion of sheep.

You've a rather high opinion of yourself, don't you?

I've already explained that even an annualised return of 7% wouldn't have beaten paying off a mortgage at the weighted average rate over the period.

Even if the annualised return on the index had been 7%, an Irish investor would have done well to make an annualised return of 4%, after accounting for all expenses and taxes.

That's still less than the average mortgage rate in Ireland of 4.36% over the period.

If anything, I'm understating the position. The weighted average mortgage rate was actually quite a bit higher than 4.36% because rates were higher earlier in the period, when the principal outstanding on the mortgage was higher.

Whatever way you look at it the risk of investing in the S&P500, rather than paying down the mortgage, was not rewarded over the period

 

[Gordon Gekko]

Gordon, I don't appreciate that you tend to lean towards insults to try and belittling comments to strengthen your argument. The fact you've had to start with a comment like that I don't really want to engage further but feel it is necessary to straighten out a few points.



You do realise you have just contradicted yourself? You've said forecasts are ok because there is historical data to show how markets perform from certain levels, then a sentence later you mock people for using historical data to infer future performance....contradiction.

All that other data out there doesn't tell you what is going to happen in the future, they can't predict covid. So please enlighten us how you can be so certain that recent performance in the stock market won't continue? How are you so sure that Shroders quants are right? Are you basing your opinion on the first result from Google? if you delve a bit deeper you'll see a different view across AMs, who do you trust the most? who is right? who has the best model?

It is a fair assumption that Stock markets won't continue the returns we've seen in the last 5 years, but even in the evidence you are using they were wrong before. Who would have thought the stock market would be sitting at all time highs in the middle of a pandemic?!

Moral of the story don't hang your hat on a piece of information you've scrolled whilst sitting on the can.


Yes because calling out confirmation bias and the issue of relying on historical performance to infer future performance makes me wedded to recent memory.



I am not really sure where to start on this point, you've introuduced this 5% return in another post not directed to me, and because I didn't respond I don't understand risk? Nice to know I wasted 15 years as a risk manager on a trading desk, if only I had passed those industry exams....oh wait.

If you can lock in a guaranteed 5% today then there are other assets (riskier) that will pay a premium above this to entice the investment. You didn't make the smart move, you made the move that suited your risk appetite and goals. If you were a firm and had a goal of 10% ROTE, put all your money in a guaranteed 5% would not be the smart move, would it?

I literally don’t know where to start…

 

[DublinHead54]

- You have no visibility of my investment, income, or debt profile; but as it happens, I overpay the maximum permitted mortgage amount, 10%, and then invest the excess in a diversified portfolio of global equities. I’m happy enough with that approach and thing it’s the correct one (versus not doing the 10% and investing it instead)

When are you exiting your Global Equity portfolio?

Given you've just preached about global equity growth of 4.3% for the next 10 years vs a 5% guaranteed return on the mortgage (costs being too immaterial to factor in). I fully expect you to be making the smart move?

 

[Gordon Gekko]

Let’s try and approach this a different way…

What’s the risk-free rate right now here in the Eurozone? Probably German government debt at 0%-ish.

I think it’s pretty smart to invest in equities versus that risk free rate.

But someone with a mortgage at 2.5% has their own risk-free rate of around 5%.

It makes far less sense to take on equity risk in the hope of making 7% on average with that risk-free rate available.

It’s just not enough of an equity risk premium.

 

[DublinHead54]

Let’s try and approach this a different way…

What’s the risk-free rate right now here in the Eurozone? Probably German government debt at 0%-ish.

I think it’s pretty smart to invest in equities versus that risk free rate.

But someone with a mortgage at 2.5% has their own risk-free rate of around 5%.

It makes far less sense to take on equity risk in the hope of making 7% on average with that risk-free rate available.

It’s just not enough of an equity risk premium.

So Gordon, as you have a mortgage when are you exiting your equity portfolio given your (Shroders) bearish outlook?

 

[Gordon Gekko]

When are you exiting your Global Equity portfolio?

Given you've just preached about global equity growth of 4.3% for the next 10 years vs a 5% guaranteed return on the mortgage (costs being too immaterial to factor in). I fully expect you to be making the smart move?

I don’t know…maybe never.

I think ‘preaching’ is a little strong. I’m just of the view that markets won’t do as much over the coming years as they have done over recent years.

My personal investment plan is pretty simple; I’m switching mortgage providers, continuing to max-out my AVCs and invest 100% in equities, increasing my mortgage overpayments to 20% a year, and then investing the surplus cashflow in equities.

EDIT: dublinbay12, I’m overpaying the maximum permitted amount from cashflow and investing the surplus, so cashing anything in to overpay isn’t an option. But then I’m just a sheep, what would I know?

 

[DublinHead54]

I don’t know…maybe never.

I think ‘preaching’ is a little strong. I’m just of the view that markets won’t do as much over the coming years as they have done over recent years.

My personal investment plan is pretty simple; I’m switching mortgage providers, continuing to max-out my AVCs and invest 100% in equities, increasing my mortgage overpayments to 20% a year, and then investing the surplus cashflow in equities.

EDIT: dublinbay12, I’m overpaying the maximum permitted amount from cashflow and investing the surplus. But then I’m just a sheep, what would I know?

Wait so you follow a balanced approach that suits your individual needs and risk appetite?

If only somebody had suggested that as the best course of action on page 1....

Apologies for being pedantic but you've called out Cardanos spurious research yet you seemed to have pulled the first source from Google. So interested to know how much time you've spent and given your negative outlook Vs your guaranteed 5% to get confident to keep your portfolio.

I'm just surprised that you're now saying you invest your surplus in equities given your previous statement.

Let’s say I’ve a surplus €50k, my AVCs are maxed out, I have an emergency fund, and I have a mortgage which isn’t a tracker. I just don’t see why I would invest in equities rather than putting the €50k against the mortgage. I already have meaningful equity exposure via the pension. If things go well on the equity front, I might make 3% after taxes and costs. Or I can take a guaranteed return of 2.5% via the mortgage.

 

[Gordon Gekko]

Wait so you follow a balanced approach that suits your individual needs and risk appetite?

If only somebody had suggested that as the best course of action on page 1....

Apologies for being pedantic but you've called out Cardanos spurious research yet you seemed to have pulled the first source from Google. So interested to know how much time you've spent and given your negative outlook Vs your guaranteed 5% to get confident to keep your portfolio.

I'm just surprised that you're now saying you invest your surplus in equities given your previous statement.

How is there any conflict?

I max out the overpayments!

 

[DublinHead54]

How is there any conflict?

I max out the overpayments!

It's a contradiction! You made it so you explain it!

This is of course after you said it's pedantic to bring costs and penalties into it.

 

[Gordon Gekko]

It's a contradiction! You made it so you explain it!

This is of course after you said it's pedantic to bring costs and penalties into it.

Explain to me how it’s a contradiction…

I invest any surplus over and above the maximum permitted mortgage overpayment.

It would be a contradiction if I wasn’t maximimising the overpayments.

As for your “it’s the first thing you found on Google” point…a) nonsense b) consensus that returns from here may not be as good as they’ve been…hardly contentious

 

[DublinHead54]

Explain to me how it’s a contradiction…

I invest any surplus over and above the maximum permitted mortgage overpayment.

It would be a contradiction if I wasn’t maximimising the overpayments.

As for your “it’s the first thing you found on Google” point…a) nonsense b) consensus that returns from here may not be as good as they’ve been…hardly contentious

Gordon "Do as I say but not as I do" Gekko.

Explain how you haven't contradicted yourself multiple times. I've already explained a few of the instances to you.

It's a bit astounding after you accused me of being pedantic for bringing in the ancillary costs into the discussion because they are immaterial. Then you proceed to use it as your defense for investing in equities.

I'm sure you've spent hours of detailed research, and definitely didn't just Google it today. So please enlighten us as to why you chose Schroeder's opinion? It's interesting you discounted everybody else's research here as "scrolling the internet on the toilet". So please enlighten us to what makes your research better?

After all this back and forth we've finally closed the loop. You are doing what I suggested from page 1 of this forum a balanced approach.

It's also good to see you don't actually live in the abstract unrealistic scenarios you've been posting about and you still invest in Equities whilst carrying a mortgage.

Can't believe it took all these posts to get there.

As Sarenco would say, I hope you get Lucky Gordon.

 

[Gordon Gekko]

I genuinely have no idea what your point is. Gas stuff.

My position has been consistent throughout but I’ll spell it out for you one last time:

- Because of tax and Irish mortgage rates, it makes sense to overpay one’s mortgage (unless it’s a low tracker) before investing personal monies. It’s what I believe and what I do personally. Only when I’ve overpaid the maximum allowed amount (i.e. 10%, soon to be 20%) do I invest the surplus in equities

- My own (pretty uncontentious) view is that markets are unlikely to do as well over the next few years as they’ve done over recent years. It’s a popular opinion, and Schroders are simply one of hundreds that I could have chosen. I’m fine with that and remain fully invested through our pension accounts and personal accounts. But I do think that it skews the ‘mortgage/investing’ argument even more in favour of loan overpayments

Simple as that. Tales of ‘Billy down the road who made a million quid punting Tesla and we’re all clowns’ don’t really bother me. I prefer to look at the logic, the maths, and the probabilities.

 

[NoRegretsCoyote]

Explain to me how it’s a contradiction…

You are not making an absolute priority of reducing mortgage and are instead using spare cash to pick a basket of equities.

If you think spare cash is unambiguously better spent in reducing mortgage then the breakage fee on your mortgage shouldn't be material here either.

I've no problem with what you are doing. It makes sense in your circumstances and I would probably do the same! But it's hard to square with your position earlier in the thread.

 

[Gordon Gekko]

You are not making an absolute priority of reducing mortgage and are instead using spare cash to pick a basket of equities.

If you think spare cash is unambiguously better spent in reducing mortgage then the breakage fee on your mortgage shouldn't be material here either.

I've no problem with what you are doing. It makes sense in your circumstances and I would probably do the same! But it's hard to square with your position earlier in the thread.

Your point makes no sense given the facts.

- The breakage fees ARE material

- The lowest mortgage rates are only available on fixed rate mortgages with caps on what can be overpaid; I’m seeking out the best one with the most flexibility around overpayment

- Large overpayments are being made

- And the maximum permitted overpayments happen to fit nicely with what I want to do

- And most importantly, if there was no cap on overpayments, I wouldn’t invest, I’d just lob everything at the mortgage

 

[DublinHead54]

I genuinely have no idea what your point is. Gas stuff.

My position has been consistent throughout but I’ll spell it out for you one last time:

- Because of tax and Irish mortgage rates, it makes sense to overpay one’s mortgage (unless it’s a low tracker) before investing personal monies. It’s what I believe and what I do personally. Only when I’ve overpaid the maximum allowed amount (i.e. 10%, soon to be 20%) do I invest the surplus in equities

- My own (pretty uncontentious) view is that markets are unlikely to do as well over the next few years as they’ve done over recent years. It’s a popular opinion, and Schroders are simply one of hundreds that I could have chosen. I’m fine with that and remain fully invested through our pension accounts and personal accounts. But I do think that it skews the ‘mortgage/investing’ argument even more in favour of loan overpayments

Simple as that. Tales of ‘Billy down the road who made a million quid punting Tesla and we’re all clowns’ don’t really bother me. I prefer to look at the logic, the maths, and the probabilities.

You realise you've just repeated what I've been saying all along! This is unbelievable!!

 

[Gordon Gekko]

You realise you've just repeated what I've been saying all along! This is unbelievable!!

Let’s just leave it at that. I have no idea what you’re saying or what your point is.

 

[DublinHead54]

I'm not disputing your (Shroeders) view on the market it makes entirely logical sense as a forecast. But I'm not sure what the point is? You've provided that as support to not investing in equities over paying down your mortgage yet you are investing equities over paying down your mortgage.

I'd just like to highlight you've completely dismissed Tesla as a punt but I assume you're aware that Shroeders had a buy rating on Tesla?

You’re looking at the change in positions rather than the positions.

Person 1 has €200k of mortgage debt and €200k of investments.

So does Person 2.

The flipside is that Person 2 could become Person 1 by repaying the mortgage.

If you have personal investments and you are carrying debt of any kind, you are effectively borrowing to invest which, with our tax code, doesn’t really make sense.

A few crypto or Tesla warriors won’t disprove that.

Ben Graham’s book is legendary, but reading it and then punting Tesla and cryptos is hardly the definition of research.

The poster got lucky, great, but the hubris to not recognise that is likely to result in tears further down the line.

There is no shame in admitting to being a spoofer who got lucky in the right place at the right time. Some of the most successful people I know have the self-awareness to do just that.

So you admit you are investing whilst carrying debt? Something you've effectively said is going to lose money

Investing whilst carrying debt is effectively borrowing to invest.

Well Gordon you already said that factoring costs and penalties was too pedantic in this conversation. Now you've flipped your stance

Yes, it’s too pedantic in the context of
this discussion.

 

[DublinHead54]

Let’s just leave it at that. I have no idea what you’re saying or what your point is.

Absolutely let's leave it, you've more flip flops than a beach shop.

 

[Gordon Gekko]

I'm not disputing your (Shroeders) view on the market it makes entirely logical sense as a forecast. But I'm not sure what the point is? You've provided that as support to not investing in equities over paying down your mortgage yet you are investing equities over paying down your mortgage.

I'd just like to highlight you've completely dismissed Tesla as a punt but I assume you're aware that Shroeders had a buy rating on Tesla?




So you admit you are investing whilst carrying debt? Something you've effectively said is going to lose money



Well Gordon you already said that factoring costs and penalties was too pedantic in this conversation. Now you've flipped your stance

This is just nonsense…what you’re arguing or saying makes no sense. I’ve said no such thing. I’ve consistently advocated for favouring mortgage overpayments over personal investing. You’re just showing a total lack of understanding of how the mortgage market works here in Ireland.

You also don’t seem to understand materiality…my break fee is a five figure sum. Whereas legals for a remortgage or stamp duty for an investment are small.

 

[Brendan Burgess]

I think that the OP has probably got enough insights so far and the quality of the discussion has deteriorated too much with offensive comments being made.

Brendan