Should You Pay Off Your Mortgage or Invest? (A 50-year historical backtest)

Рет қаралды 362,013

Күн бұрын

A look into the past to assess how often investing has beaten paying off your mortgage.
Graphs from the video
go.novawm.com/MortgageGraphs
Financial Planning
I am a Chartered Wealth Manager and Partner in a financial planning practice based in the UK. If you would like to find out more about our services, please follow this link: go.novawm.com/getintouch
DISCLAIMER:
This channel is for education purposes only and does not constitute financial advice. Any opinions or assessments expressed are James’ own opinions or assessments, which are not affiliated with any third party. Any representations stated as facts or views based on such facts are relevant to circumstances applicable at the time of publication. This information should never be relied solely upon to make decisions, and James accepts no liability for any investment actions undertaken by viewers. Please seek regulated financial advice or an advisor if you require assistance. The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested.
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00:00 The Problem with Averages
02:24 Tom & His Question
04:07 Historical Market Data
05:24 How the Test Works
07:13 ISA Results
09:24 Different Mortgage Sizes
09:47 Pension Results
12:28 Pension +1
13:34 Different Time Periods
14:27 60% Stocks 40% Bonds
16:31 Key Considerations
19:26 Why this was not for Tom

Пікірлер: 873

@JamesShack 3 ай бұрын

It's great to see a wide range of opinions in the comments. Please remember that what feels right for you may not be right for someone else. There is no single right answer for everyone.

@SolemmeCy 3 ай бұрын

The unfortunate truth is, all of these investment strategies are reliant , or edge ahead, over repaying the mortgage based on current regulation. All it would take for some of these models to fail would be a change in the regulatory framework in the UK. Now that's probably a risk factor you cannot predict!

@mrscreamer379 3 ай бұрын

Not sure if this is in your wheelhouse ... but what if I retire abroad? Is it possible to take my 25% tax free money, and then move tax jurisdiction to say Montenegro with a flat tax rate and then draw the rest of my money at 9% ... or move the pension to a QROPS alternative and take advantage of their rules? If I can retire abroad to a better tax system, how does that change my situation, would I lose access to the NHS, would I still get the state pension? ... because yes, having saved tax free into my pension with the understanding they get the tax later on draw down ... I'd like to do the dirty on the government and leave them with nothing. I feel you have a whole video on the implications of retiring abroad. 😁

@JamesShack 3 ай бұрын

@@mrscreamer379 It's not my area of expertise but I know that it depends on which country you retire too. Some recognise UK pensions in their entirety and you still get 25% TFC. Other don't allow TFC but you can draw down the pension at marginal income tax rates - which are often lower than the UK.

@user-tm2gb7cj8k 3 ай бұрын

When comparing the pension to the ISA am I correct in understanding by using the 25% tax free you cannot then use it in the future. So if you get say £10k from state pension and £30k from your pension you lose the benefit of 25% of the £30k beings tax free say £1.9k per year, say £38k over a 20 year retirement as a basic rate tax payer? Irrespective of this I believe the pension looks favourable over the ISA but as you elude to the overall strategy suits wealthier people who can ride out the crashes

@JamesShack 3 ай бұрын

@@user-tm2gb7cj8k That is correct, if a scenario ended up having £400,000 in the pension but you have to use al of your tax free cash to pay off the mortgage, the remainder will be taxable. So, a result that leaves you with £50k left in your ISA would be better than a result that leaves you with £50k in a pension. Depending on your marginal tax bands, of course.

@despoticmusic 3 ай бұрын

I’ve paid off two mortgages very early (15 and 10 years on 25 year loans) in my lifetime - both with overpayment since day 1. My outlook on life and work changes completely when I’m mortgage free. 🎉

@llamudos9809 3 ай бұрын

Dito last payment in may. Have 2 properties and paid both off in a similar period. I'm now preparing for early retirement (57 planned). Just waiting to fill both our Premium Bonds and still paying into 5 pensions (2 DB's, 2 DC's and a SIPP) between me and the better half. So well on way to be debt free and able to enjoy life early without anyone having a hold over me

@mynameisben123 3 ай бұрын

That’s perfectly legitimate, if you decide the mental health and other benefits of paying off a mortgage outweigh the financial benefits of investing in stocks - but that’s a personal decision only you can make. This video just illustrates the method that makes the most money.

@user-md6se6in1z 3 ай бұрын

im 75k away help! its been so hard! ive been on this intense journey for 3-4 years now! i feel ive had no life!

@llamudos9809 3 ай бұрын

@@mynameisben123 I have seen people take your approach and do well. I have seen people put their mortgage over payments into Stocks and shares and fail miserably so i see it as a gamble and risk where as simply paying your mortgage first is a sure thing.

@jasonburden7999 Ай бұрын

@@user-md6se6in1z sorry to hear that you're in this position. I too am considering buying my first place, but to afford it by myself would mean cutting back a lot and potentially feeling like I can't go anywhere or do anything, except just stay at home and pay for a house for 25+ years. Are you trying to overpay your mortgage or just keep up with payments? It sucks feeling like you have to miss out on life just to have a roof over your head and yet this is all we hear from previous generations. Can you stretch the length of your term to reduce monthly repayments? Are you able to earn more money in your current job or a new one? Is downsizing an option so that you have a smaller mortgage?

@j10001 3 ай бұрын

Phenomenal analysis! So many KZfaqrs skim the surface and repeat one another’s simplistic ideas. Finally someone who “gets” data and can do quality analysis! Thank you.

@user-dv8bs7tb5c 2 ай бұрын

Yes!

@alangordon3283 3 ай бұрын

Paid my mortgage off last year 12 years early . I’m secure in knowing I’ve always got a roof over my head . What I paid in mortgage payments now goes into my pension.

@davidjewood 3 ай бұрын

Very wise. Good move

@tancreddehauteville764 3 ай бұрын

But you've left it late for the pension.

@tancreddehauteville764 3 ай бұрын

@@davidjewood It depends. I assume you are one of those who has a defined benefit pension, but if you don't then this isn't a good move.

@paulmussett94 3 ай бұрын

Very similar to you, paid off my 25 year term after 14 years. Invested in both over payments to mortgage heavily and some nominal SIPP payments. I now direct all spare cash into a global mix of equities, hedged global bond, japan and UK stocks.

@jellyd4889 3 ай бұрын

I knew an Alan Gordon.... Essex.. probably lots of Alan Gordons

@thomascowan6933 3 ай бұрын

I'm 27, I'm a newly qualified Financial Planner, I personally put much more into overpaying my mortgage than I do into investing. I know that I would very likely be better off allocating more to investments given historical return models, but I also know I'm naturally conservative as a person. For me, the peace of mind of being 40-45 with my mortgage paid off, vs having a much healthier private pension but my mortgage still hanging over me, is a no brainer. I still invest in my retirement plan and for me it's the right balance. It's always helpful to look at these kind of models though, great video James!

@dw300 3 ай бұрын

This results is less liquidity and less diversification. Is that not a worry for you?

@postlude1 3 ай бұрын

Well, not sure if this will make any difference to you, but I am 45, and I _really_ regret paying my mortgage off early! I’d be way better off now if I’d invested, and because the money is illiquid and tied up in my property I don’t even feel more financially secure.

@JamesShack 3 ай бұрын

Thanks for the comment, and congratulations on qualifying! In your situation, where you're a long way off pension access age, then this specific strategy would not work. I follow a different more flexible version of the strategy in the video. I have an IO mortgage and invest all of the cash flow I save compared with a repayment mortgage. Instead of investing in a pension, I invest into ISAs and GIAs for greater flexibility. As you can see in the video, your chances of success are lower with an ISA or a GIA, but, as I get closer to pension access age I can use them to make much larger pension contributions. This gives me more flexibility and could be just as tax-efficient/effective if I do make those pension contributions in the future. It also helps protect against changing pension rules. Edit: To add some context as to why this is suitable for me but may not be for others: I am someone who is very comfortable with risk, has a long investment horizon, and has adequate insurance in place. I also save into a pension for the employer match from my company and to get below certain tax thresholds as required. I have a fairly low-interest rate (2.4%), and I may take a different view if my interest rate goes up to 5 or 6%. That would not be an entirely data-driven decision, but one that just feels right at the time when considering my wider financial position - and emotional state!

@leemarsden1846 3 ай бұрын

If you lose your job you can’t use the pension to keep up the mortgage payments and you may be repossessed if you have made overpayments you can fall back on them

@thomascowan6933 3 ай бұрын

@@postlude1 I still invest, I just currently invest more in paying off my mortgage (I review this yearly and would change it if interest rates changed significantly. If you’re 45, you’re likely looking back regretting not investing in the stock market more in between the ages of 30-45, when market returns were excellent and interest rates were very low. And that’s reasonable, and maybe you should have invested more. But there’s no guarantee I will experience those same economic conditions in the next 15 years of my life. Based on my person tolerance for risk, and historical data from the last 100 years, not just the last 15, I believe my current strategy is right for me.

@AshJun17 3 ай бұрын

Great content. I love the data and analysis. So much more granular and powerful than 99% of financial content out there.

@jamesdaw131 3 ай бұрын

These are the videos I come for! As someone with my own model for back testing - I love these.

@ChrisRobinsonish 3 ай бұрын

What a brilliant video. So well put together and thought out - every time I thought of a 'what if' at the start of the video, you ended up covering it off later in the video. Very comprehensive and great information, thanks - you've gained a new subscriber!

@AnthonyBuonanno 3 ай бұрын

James you are brilliant - thorough, super clear, realistic and engaging. Thanks for another great video.

@TheWelshBloke319 3 ай бұрын

What a well rounded video. I hope people didn’t stop watching half way through.

@chrismunt8443 3 ай бұрын

Amazing content. No.1 financial KZfaq channel! Would be nice to see some content for newer investors on the UK medium salary.

@user-im4gi6wh9l 3 ай бұрын

Very good analysis indeed! I particularly like your comment in the last part about zooming-out to really look at the total risks the investor is willing to expose himself/herself to, namely job security, health condition, personal stress during the periods of market fall, especially when they are prolonged periods of time.

@daverichardson6490 3 ай бұрын

We took the decision to pay ours off 14 years early with a lump sum and then aggressively over paying. It clears in April and we couldn't be happier. The certainty of no mortgage is there and we now have 'spare' capital to invest/spend as we see fit. I get the maths and the predictions, but to get rid of a mortgage early is a tremendous feeling!!!

@JamesShack 3 ай бұрын

Congratulations! Everyone must find their own approach, and for most people, paying off their mortgage is the right option. It's interesting to see the data, though!

@Ugi5 3 ай бұрын

so you're paying off 2-6% mortgage aggressively instead of investing and generating 10% returns? it sounds like you're not fully taking advantage of opportunity cost.

@webbo73 3 ай бұрын

a bird in the hand....

@jakespeed6515 3 ай бұрын

I’m not sure what that feeling is like, I bought my house with a small loan and, and cleared that in 8 months, will you be investing in stocks and shares isa or buying another house and letting your as a HMO?

@daverichardson6490 3 ай бұрын

You are welcome to your opinion@@Ugi5

@badlittleking 3 ай бұрын

I appreciate the time and attention to detail you put into this. Thank you!

@mattsennett 3 ай бұрын

Overpaying my mortgage for many years so as to clear it sooner was the route I went down alongside investing. Yes I could have done better by not doing that but I wanted the guarantee of being mortgage free. This then lead me to increase my pension contributions via salary sacrifice rather than pay more to service debt due to mortgage rates increasing. Knowing our home is all ours is a good feeling where as my pension doesn't feel like mine yet as I can't access it.

@AshJun17 3 ай бұрын

Sound strategy and the one I employed. I can also invest aggressively now with the additional cash. The lack of liquidity point some are raising just doesn't apply to the majority of people that are fortunate enough to pay off their mortgage early as they usually earn more and have great emergency funds. Also stock markets don't go up in a linear fashion so not sure how liquid it truly is as who would want to pull it out after a 10%+ drop?

@boyasaka 3 ай бұрын

I paid of my first mortage in 5 years by age of 28 8 years or so later I moved house and took out a 30k mortage which I paid off in 5 years Few years later moved in with my long term gf She sold her house , I sold mine and bought a house together , got another 30k mortage and paid that off in 3 years My reason No matter what happens to the market What happens to your health Or what happens to your job If you have no mortgage your in a much safer place and will always have a roof over your head

@deldia 3 ай бұрын

Agree. I'm not in a bad situation but I have 20 years of mortgage now. Should be ok but I'd prefer to be in your situation. I have paid off £2k today though so maybe we can bring it in a few years early.

@davem.4003 3 ай бұрын

That is terrific, well done! However the low mortgage value and speed of repayment does suggest an unusually low mortgage to income ratio and an average person, having a more typical mortgage to income ratio of around 4x is unlikely to achieve the same results. It was, of course, much easier to achieve during the (relatively) recent times of ultra-low interest rates.

@boyasaka 3 ай бұрын

@@davem.4003 I’ve always been a saver Dave and never a high earner Left school in 1990 at 16 years old Worked on a hardware shop for £75 a week Soon as I passed driving test aged 17 , started delivery pizzas 4 nights a week Made about £60 a week from pizza delivery Gave mother £20 board £40 a week pocket money And banked the £75 a week from main day job 4 years later aged 21 ish had 15 grand in the bank and was earning £120 a week in same day job working in hardware shop Left home and Joined Royal Navy Think pay was about £800 a month ( this would be around 1995 ish Gave myself £200 a month pocket money and saved £600 a month Or tired to Story short Bought first house in 1999 for £52 grand and put £30,000 deposit down paid off £22 k mortage Mortage was £200 a month exactly But was paying £600 £800 £400 extra each month as much as I could , while driving a old car and being really carefully Fast forward many years and I’m now 52 I now take home £2000 a month pay £1000 a month into pension £500 a month for my share of bills and food etc And have £500 a month pocket money for nights out, clothes , etc etc etc

@boyasaka 2 ай бұрын

@@deldia over paying your mortgage each month is the best thing you can do Even small amounts can knock years off your term My tip to anyone is If your paying x amount and your interest rate drops , just continue to pay what you were paying when the interest was higher , and it’s lashing money off your outstanding balance owed 👍

@adm58 3 ай бұрын

Excellent video, excellent channel. I just discovered it. Thanks for your work James and for sharing your knowledge with us all.

@wlegna18 3 ай бұрын

Best video I've seen on the subject! Thank you! It would be interesting to see the numbers for 50% paying off mortgage, 50% investing in stocks.

@terryjlee1531 3 ай бұрын

Great video. There are some people in the comments saying they will pay of their mortgage and others calling that out as not being right. However I will also be paying off my mortgage as a priority. At the end of the day it comes down to personal preference and no amount of internet advice that is generalised should impact that. The first step is to educate yourself, make sure you know what decisions you need to make and when. Then do some self reflection and understand your personal circumstances but also what type of person you are. Then know and accept that if you choose to pay off your mortgage, most likely you’re not making the most financially sound decision but if it’s right for you for other reasons and you’re doing it with both eyes open. Then overall you need to step back and give yourself a massive pat on the back, because at the end of the day you have created a situation in your life where you can choose to make these choices, as opposed to most who don’t have the spare cash to do such things. To be clear, I focus on my mortgage after maxing out my investment ISA but again that’s not for everyone.

@anthonyuzum 3 ай бұрын

Excellent video again James. I personally use a repayment mortgage but I save extra in my pension & LISA to have the option to pay off the mortgage early in the future. The best bit for me was understanding the risk in other parts of one’s life. I have chosen to be aggressive with my career & investing (100% stocks & lev BTL). Perhaps I need to consider a slightly more conservative approach in one of them. Thanks again, these videos make a huge difference to our collective decision making process.

@Episkopi2008 3 ай бұрын

One of the best videos on KZfaq! Proper financial education.

@markkelly6532 Ай бұрын

I'm a finance director and would fancy myself as a Treasury expert and I think this video is phenomenal. Well done. Superb analysis.

@XayedAli Ай бұрын

This is one of the best videos I've ever watched on financial planning

@markcarter9476 3 ай бұрын

My first mortgage was taken out in 1987 and was an endowment type. These relied on an investment vehicle to pay off the mortgage when it matured in 25 years time at the end of the mortgage period. Many of us remember the scandal of endowment miss selling when the FCA had to step in and sanction the industry. My endowment tanked and paid out about half the required amount when it matured, thank you Canada Life. Luckily I have already paid off the mortgage some 18 years earlier and was not relying on the endowment. So fantastic concept but relies on managing the investments effectively.

@njipods Ай бұрын

the problem with endowments is that the interest rates dropped. people got less return on investment but also paid a lot less for there mortgage. had they paid the savings they made into more investment or the mortgage they would have been ok

@mauriziocassano 3 ай бұрын

This is an amazing piece of content! Wonderful, thank you!

@guypeach1050 3 ай бұрын

I've been grapling with a similar question myself. This is one of the most useful answers I could have asked for!

@ricksanchez1393 3 ай бұрын

The best investment is the one that gives you the best sleep. I paid of my mortgage years ago ZERO regrets.

@Grangey 3 ай бұрын

Perfectly timed video and very thorough. Thanks!

@LiquidFlower 3 ай бұрын

Soo good. Whenever I try to run my own scenarios I get so overwhelmed with the variable scenarios @-@ this is quite a nice summary to cut through all the bank and gov strategies they don’t tell us about.

@alexmitchell3359 3 ай бұрын

Love the design of your kitchen!!

@alexporter7003 3 ай бұрын

Great idea and analysis. Thats some above and beyond financial advice!

@belle9360 Ай бұрын

The hypothetical analysis you did with your client in the last part is a key differentiator in your content and is the value add that financial advisers don’t often demonstrate. The numbers say one thing, but if someone hasn’t considered their human responses to a crisis, the data can obfuscate the real risk. Great video.

@charlieglenister6672 3 ай бұрын

Love the content James! Its implicitly touched on throughout your videos but would love to see a video on the optimal path to building wealth for people currently in their 20's / 30's, particularly with a focus on retiring early amd not necessarily waiting for your pension to kick in

@mattlongman 3 ай бұрын

Excellent video James. Mortgage paid off and now contribute 40% of wages directly into Salary Sacrifice pension. This evidence is very relatable to my low risk appetite.

@barbarar5869 3 ай бұрын

Great video. I am all about diversification. I will overpay my mortgage and I plan to pay it off a few years early, but I don't want to only focus on that. For me the most important thing is being able to be flexible so that if something happens down the road, not all of my money is tied up in my pension or my house.

@alexccj1 3 ай бұрын

In the first example with Tom, taxes would make a huge difference in countries where interest payments on mortgages are tax deductible (22% in Norway), while unrealized gains on investments are tax deferred. Also you can easily invest in a global all stocks ETF with very low annual fees (for example as low as 3 basis points, but for sake of calculation one could increase this to 5 - 10 bp). If you add these assumptions I am sure the calculations at 9:30 (in the video) would look much more favorable. In any case, great content, with concise and clear delivery.

@markjwgraham7842 3 ай бұрын

@JamesShack - excellent video sir. I can only imagine the amount of work it took to sift through this data, collate it into charts and meaningful decision-grade data, let alone editing it into a video. Being aware of all these options and how they could be configured for a desired outcome really shows the value you must add to your clients as an FA.

@JamesShack 3 ай бұрын

Thank you for thinking about the effort! Yes, this was a monumental task; I think it took me about 60 hours in total with some very late nights. I need to get a video editor!

@MrDuncl 3 ай бұрын

@@JamesShack It is interesting to see how trends change. Back in the 1980s all the lenders were pushing endowment mortgages, which weren't dissimilar to the stock market idea except the funds were "with profits". while the idea of changing / fixing your mortgage every couple of years was unheard of.

@whywouldigivemyrealname5162 2 ай бұрын

I watched way too much of this as an American.

@danteburritar2822 3 ай бұрын

What a great video, many of us will need to watch it more than once as there is so much unique information in there. Personally I’d like to see a similar video using historical datasets to compare the continued investment of a pension TFC lump sum (withdrawing it gradually to pay the mortgage each year) versus using that TFC to pay off a repayment mortgage. By keeping it invested you pay mortgage interest but gain investment performance. I imagine the results owuld be similar, i.e. not as much benefit keeping it invested as we would perhaps imagine.

@davidjewood 3 ай бұрын

I paid off my mortgage early. No regrets what so ever, not for one second

@davidjewood 3 ай бұрын

@@zaidahmed9527 100% spot on. I had a few near misses with my building society, if you get my drift. When I was in the posistion to clear it, I didnt think twice. I cant explain the relief and freedom, it took months for me to process it. I now spend my mortgage payments on monthly trips abroad.

@ubernard3000 3 ай бұрын

Same here. Totally agree.

@davidjewood 3 ай бұрын

@@ubernard3000It completley changes your outlook on life. It's blooming fab!!!!

@johncarter6040 3 ай бұрын

Same here too, couldn't agree more, I paid my mortgage off after 10yrs. Then paid the mortgage amount into pension for tax relief and also maxed out ISA contributions to build up early retirement pension and ISA pots with added bonus of ISA being redundancy protection if needed. Retired as planned at age 55.

@davidjewood 3 ай бұрын

@@johncarter6040 I bought my house in 1998 just before prices went north. Clearing the mortgage means the equity is now mine rather than a figure on a statement owned by the building society. I live in an area which is highly sought after. My plan is to cash in, maybe down size, buy somewhere for essentially cash bank the difference. Call it and day and go travelling untill the baby Jesus calls me.

@DG_1296 3 ай бұрын

James, I'm 28 and had a completely financially ignorant upbringing (I guess I can be happy at the luxury of not having to worry about money, but also now I'm realising a shame that I didn't know more about finance). I just wanted to thank you for your videos, I have spent countless hours over the past few years educating myself on finance and future planning. Your videos are always my go-to, and have hugely helped me understand personal finance, including starting to invest and buying a house. I'm sure you get loads of these messages, but I just wanted to express my personal thanks for everything you do completely for free. All my friends and family now watch your videos, please keep doing what you're doing.

@JamesShack 3 ай бұрын

Thank you so much for taking the time to comment! I’m glad you’re finding the content useful and I will certainly keep it up! Thanks again for spreading the word about the channel.

@brettsta72 3 ай бұрын

This is a phenomenal video. James this is so insightful and balanced. Thanks so much.

@NekonataVirino 3 ай бұрын

The peace of mind and flexibility inherent in have a fully paid off house is massive - especially if you have a family - if the loss of your home would be an absolute disaster then paying off the mortgage is a good move unless the gains are very much more likely and also greater in scale. Pension funds fail, stock markets crash, jobs can get lost, pension rules change, isa rules change …

@Solihul886 3 ай бұрын

Regimes change also, communism would effectively own anyone's asset at will. Diversification is always a requirement for the most effectiveness

@JoshHenderson16 Ай бұрын

I feel like I don't quite understand the allure of owning your house, above all other vehicles of prosperity. Sure you'll have paid off your home when you are 'reasonably' young, should the worst happen. But what's the point in that if you have no means of buying food, water, heat, a means of transportation, the means to pursue a higher quality of life?

@goncalomenboss 3 ай бұрын

THEEEE best personal's finance video on the face of youtube, hands down. This is pure nuggets of gold🙏💲

@davidt3321 3 ай бұрын

Awesome video. 👌 watched this a couple times now to help me try and decide what to do going forward with my options

@j10001 3 ай бұрын

Maybe it’s only an American thing, but two typical features of mortgages here are (1) fixed rates for 30 years and (2) ability to refinance at a lower rate if rates fall (and in fact to extend the mortgage at that time for another 30 years!). This creates a phenomenal real option, meaning if you begin a mortgage in a high-rate environment, you can step down to a lower rate when rates fall. It also means if you begin in a low-rate environment (as did many current homeowners), you enjoy a low fixed rate even when interest rates and returns increase. (Also, I believe underwriting is usually based on current income without regard to approaching retirement, but I could be wrong on that.) I suspect both of these facts would meaningfully change the excellent analysis you have done here. Thank you for some great insights!

@nataliawalker4184 3 ай бұрын

Damn why UK mortgages don’t work like that! Fixed interest rate for 30 yrs and that if you did it at the low rates that would be amazing

@raeveth 2 ай бұрын

Yeh it doesn't work like that here unfortunately. If it did, everyone would have fixed when rates were next to nothing before covid. You can only fix for a few years, certainly not more than ten and ten works be a lot pricier than a two yr fix

@Lord_Drregron 3 ай бұрын

James - thank you for this video. I already understood many of the principles but you’ve brought it together with such clarity and using solid data and graphs. Clearly explaining the methods you’ve used to produce them so if anyone has an issue then they can recreate or alter the method - it’s truly great and you don’t see this often (KZfaq is often filled with unbanked ‘facts’. You’ve also articulated that this is so much more than just stats as it’s about personal emotional state as you go through life. Will be revisiting some of my own planning in light of your video - it may not change but some great food for thought. Thank you for making and sharing such a well rounded video 👍

@MrEdrftgyuji 3 ай бұрын

I always prioritise paying off the mortgage. The trouble with pensions is that they are tightly controlled by government, who can (and will) change the rules to suit them. 40+ years is a long time to hope a future government doesn't screw you. And it isn't liquid - once money is in a pension, you can't take any out until you are 55.

@tancreddehauteville764 3 ай бұрын

Soon to rise to 57 and then trail the state pension age by 10 years earlier. But the whole point of a pension is to provide a long term investment for your later years, why would you want to take the money early?

@raeveth 2 ай бұрын

You can take the money out earlier but there's a fat penalty

@TheLondonRunner 3 ай бұрын

I don't often comment on KZfaq but this is absolutely top class - excellent analysis, clearly presented.

@JamesShack 3 ай бұрын

I’m glad you enjoyed it!

@mooremoneymakin 3 ай бұрын

Such a good video really going into what volatility really looks like in a 100% stock portfolio. Given me lots to think about in terms of my own strategy!

@gerardocrolla5894 3 ай бұрын

In my opinion, this is definitely a sophisticated investor idea. If you have other income from Buy to let etc... then there isn't the issue of losing your job etc... and therefore having the stress of no income at all. The great thing about a property ( bought well) is that the property will rise with inflation so the debt will also fall with inflation in terms of Loan to Value, so interest only would be the best way forward. But as I said if you are a sophisticated investor then interest only on your buy-to-lets for example allows you to reinvest in more property or diversify into equities. This would apply to your Home too!

@fennugreek-gs5zb 3 ай бұрын

Very interesting to watch from a US point of view, mostly because in my head I needed to keep translating the UK investment and retirement terms to American equivalents. Also, the mortgage options can differ, especially with the ability to fix rates for longer terms in the US. In the end, an excellent analysis and I completely agree with the conclusion that it is important to consider not only your risk tolerance but also how you will behave. I like to imagine that I have a high risk tolerance, but when I had some spare cash I would find myself paying down my 'sure thing' mortgage rather than adding to my investment pile.

@deyoswed Ай бұрын

What brilliant take on a dilemma I think many of us are faced with, thank you for your time and effort❤ I know a longer term mortgage would give the portfolio more time to compound, but i still would have loved to see the chart with a 25 or 30 year term mortgage😊

@user-cu3ll2tr6c Ай бұрын

The word "diligent" is coming to mind! Awesome content, thank you for educating us all!

@lrac111 3 ай бұрын

Nothing compares to being mortgage free for your mindset, your money and risk IMHO. Been mortgage free since 32yrs old and I heavily invested into pensions, isa and with having low overheads I retired at 55yrs old

@jamesgiedt5682 3 ай бұрын

Got to pay that mortgage off

@jamesgiedt5682 3 ай бұрын

Play mortgage off in time to retire and invest all the while

@JudgeHill 3 ай бұрын

We paid off the mortgage - who knows if we did the right thing? But anyway, the sense of freedom I have is nice

@davidjewood 3 ай бұрын

I did the same. The freedom and more so the relief is dificult to explain

@boyasaka 3 ай бұрын

Imo you did the best thing you ever could And even if you loose your job and the stock market crashes more than its ever crashed before You might be eating bread and jam But you will be eating it with a roof over your head

@davidjewood 3 ай бұрын

@@boyasaka Have you bean reading my mind! 😂 Who could have for-seen Truss becoming PM and crashing the markets.

@deldia 3 ай бұрын

Oh you've bought a lot. Who cares now.

@-_James_- 3 ай бұрын

@@boyasaka Damn you. Now I want bread and jam. 🤣

@keithclunk3125 3 ай бұрын

Not so relevant for me as I've already paid off my mortgage and have no debt, but that doesn't detract in anyway from this video. Very good indeed and it's clear a lot of background work took place to create this. Good job, man!

@The_BenD Ай бұрын

Great video all around! As a Canadian, it's refreshing to see some content that discusses this from a non-American viewpoint. While our pensions, mortgages, etc don't work quite the same way as the UK, there's a good amount of overlap that in many ways makes us more similar than to the US. I'll have to do some math to see just how much the outcome changes when taking into account some Canadian specific items (RRSPs, TFSAs, Smith maneuver, etc.) but this is a phenomenal starting point.

@hermand Ай бұрын

Great and fascinating analysis. Im definitely happy to keep on paying my mortgage with the security and equity that gives md

@jonaxworthy 3 ай бұрын

tried the pension as a mortgage vehicle 4 years ago - bank would not accept it (i would have access to pension by the end of the mortgage). Great content and shows how using average returns, average rates etc over long periods don't work when planning. Presumably this is exactly the same when drawing down defined contribution pension lumps (i.e. the lumps aren't to pay off a mortgage but to give an income

@iainsear7830 Ай бұрын

I watched 3 of these videos and they are were sensible and well thought out, rare... subscribe!

@adambritain5774 3 ай бұрын

I’m not fussed about paying a mortgage off early. I know it may financially cost me but i watched my dad’s wealth get absolutely descimated by inflation as he wanted his mortgage gone ASAP. He hasn’t had a mortgage since 1994 and he’s worth WELL over a million quid less than he could have been if he’d have been more than 99% conservative with his outlook. Being mortgage free must be a lovely feeling, and i know there’s things you can do with the money once you’ve paid it off to keep above inflation, but in my own experience being mortgage free has come at a HUGE financial cost. I’m not interested or intelligent enough to work out what i should do with the paltry sums of money i save so i stick £100 a month in a Vanguard 100% LS (which will be heavily increased in the future but i have a very young family ATM and i’m far from a high earner) and i want a mortgage for as long as possible as it seems to me to be one of the ‘easiest’ ways for a life time of investments to at least match inflation, or beat it.

@jimbojimbo6873 3 ай бұрын

Bet he slept well everynight though

@adambritain5774 3 ай бұрын

Possibly. But that good nights sleep cost him over a million quid and massively reduced his ability to pass on generational wealth to his children. He’s a typical boomer really; fairly self centred.

@davem.4003 3 ай бұрын

Hindsight is a wonderful thing. If only...

@Andre-ij2tv Ай бұрын

Really great explanation on how to view surface analysis and understand all the variables. Specially the toll it might take on you going through the down periods, contrary to a safer route with potentially less gains.

@CryptoKrill 2 ай бұрын

Fantastic food for thought, I do consider myself quite financially savvy but haven't yet considered some of the things you've mentioned. Thank you

@mohamedpatel3978 3 ай бұрын

We had Endowment mortgages in the 80s and 90s where at maturity the amount you got back was supposed to be greater than your loan. So in theory you paid your mortgage off and had some left over. Most people found their policies had grown as forecasted and there were shortfalls.

@matt_-_-_ 3 ай бұрын

I'm in my twenties, lucky enough to have a mortgage and I look at all the data but my emotions are getting the better of me. I agree with lots of other commenters that I like the sound of the security of owning my home outright. Although the maths checks out in a lot of historical scenarios, I'd rather continue to pay the mortgage and make some contributions to my SIPP (not an employee). I bought the house with the current high mortgage rates but look at some who have been hit very hard after getting used to the low rates. The ISA model doesn't seem to have enough of a reward - and the pension would be too risky if mortgage rates spiked and I'd be unable to access the cash before I'm 58. Not to mention the additional equity may help if we decide to upsize in the future (no plans for kids but I might want a big garden). All in all, a great video James. Very thought provoking!

@apb3251 3 ай бұрын

Owning your home outright gives you financial security against any risk (apart from repairs, bills and council tax) if you are risk adverse this is the best strategy as once the mortgage is paid off and remember the more you pay the lower the monthly amount as you get older, you can then invest aggressively as you get older but with the secure house paid off

@Solihul886 3 ай бұрын

@@apb3251for the majority of situations that leave those people vulnerable to being pension reliant, which never keeps up with inflation, why survive when you can thrive. For the most effectiveness, diversification in investments for 1-2 decades and then pay off debt would be more optimal.

@luitzenhietkamp 3 ай бұрын

What gives security is having cash on hand. If something unexpected happens and you've sunken all your money in overpaying the mortgage you have very limited options. This is why I have a six months of outgoings in emergency fund and put more than half of my net pay in an index tracker. I think the whole analysis also only really applies if your mortgage payment is still quite considerable to you. The mortgage costs less than 20% of our take home pay so I don't really think or worry about it. The money that doesn't go to my mortgage should be invested optimally. Overpaying on 2% is not that.

@apb3251 3 ай бұрын

@@luitzenhietkamp you can get mortgages that allow 10% overpayment each year with no penalty. Each overpayment (monthly or annually) reduces the capital repayment meaning your likely have more cash in hand each month. Don’t forget that on e.g. £500k mortgage borrowed your actual repayment will be £700k over the term due to interest (£200k on interest payments). So any investment you make has to cover the difference in paying interest on the mortgage otherwise you are worse off not replaying the mortgage. In the example James gives the person can reduce their monthly repayment by £200-300 per month by just one year 10% over payment giving them £2k -£3.6k per year to invest extra on top of their other free cash. If the stock market crashes you have significant less value for years ahead, if the house market prices you have a home that maybe worth less but you still have a place to live. It is also an asset (like stocks) that increase with time and can be sold. Also don’t forget that unless the stocks are in an ISA or Pension (which limits you to £80k a year investment tax free) you pay Capital Gains Tax on them even after retirement and if the return exceeds the annual permitted £12500 per year you pay income tax as well.

@climbscience4813 14 күн бұрын

This is fantastic! I have asked myself this very question quite a bit and discussed this with my wife too. We came to a very similar conclusion, since we don't have nerves of steel when it comes to these things and life is too stressful to be able to afford this on top. Great analysis and reasoning. Well done! 👍

@Carl-hs420a 3 ай бұрын

the best investment path is always to divest yourself of money lenders, to become a fully paid up property owner so you can speak your mind without fear or losing your job and then your home

@UnbenutzerKanalname 2 ай бұрын

excellent video! it is so true that it's not easy to "follow the numbers", in fact it is very hard and few people can do it.

@UKGeezer 3 ай бұрын

I don't intend to pay off my mortgage early, but invest into my pension and ISA and use both to draw down on in retirement, and I will continue to invest in my ISA after I retire, although on a less risky portfolio. The way I see it is I'm 53 with about 76k left on my mortgage and not enough in my pension yet. I will still be working anyway when my mortgage comes to an end, so don't really see the point of overpaying for no reason. unless interest rates go sky high that is. Would much rather invest as much as is practical while still having enough left to have a life, plus I also have a big emergency fund so got that covered as well. I'm sure there's probably better options out there, but I feel comfortable with this strategy.

@upnewbie 3 ай бұрын

Great vid, even for someone outside of UK. Thank you very much.

@Ezinma88 3 ай бұрын

Not sure that I followed all of that salary sacrifice maths. But, got the general gist. Informative. Thanks.

@adambritain5774 3 ай бұрын

This video was fascinating. It’s an investment strategy that hadn’t even crossed my mind and i’ll (likely) never he in a financial position to get an interest only mortgage according to your criteria but it was very interesting nonetheless hearing another alternative strategy to ‘making’ it.

@nathanwooldridge85 Ай бұрын

First time watcher. Wow I loved all the data! You covered so many scenarios. It crossed my mind that giving Tom needed £200k at a specific date a reasonable scenario would be to transition his portfolio balance the closer he got. Or an alternative scenario would be to take out £200k when he hit the target rather than just waiting for the drop dead date. He could then pay off the mortgage and put his repayments into investments. So many options

@shellyperera2010 3 ай бұрын

Fantastic video, excellent in depth analysis. I've always felt the pension for a higher rate taxpayer is a no brainer. We're planning on paying off our mortgage from the tax free lump sum. In order to avoid the risk of a crash just when we need the money, the final year of pension contributions will go into a money market fund within the pension instead of equities.

@woodssmj 3 ай бұрын

Great content as always James! It would be interesting to see a back test with 100% equity portfolio with 12 month review period at which point either mortgage over payment is made if stocks have beaten inflation or equity portfolio is rolled over to next review point

@mattkist 3 ай бұрын

Really fantastic analysis and presentation. Thank you!

@EamonnMooney 3 ай бұрын

The way to think of this is a choice in gearing, rather than an either or. For me + my wife, whatever is left over at the end of the month we split 60%-40%. 60% goes in our ISA's, which is a mix of short term fixed income funds and high growth stocks to balance out. The other 40% is a mortgage overpayment. The other benefit of the mortgage overpayment is it goes against the balance not the term so our mortgage payment goes down. So the next month we have more spare cash which we then split 60-40 in the same way.

@gwilymthomas3699 27 күн бұрын

This was a very informative video and it’s given me a few things to think about. I very much appreciate the real-world recognition at the end. It’s easy to look at long time-period, uptrend graphs and lament that you weren’t fully invested. However, how easy it also is to forget the feelings that come over you when a market is falling and the media’s losing it :).

@falconvelocity 3 ай бұрын

Very good video. Unfortunately, I'm at the start of my journey and getting older. Wish I knew about this stuff when I was younger and wish I could afford your services haha!

@V_Dubya 2 ай бұрын

Great video and well prepared content. Thanks James

@MrMeeseeksLookAtMe 3 ай бұрын

Incredible content, like no other. Thank you!

@phantomfreckle 2 ай бұрын

HI Thanks for the video , I use a interest only and pension strategy 26 years ago . I still have a mortgage of £150k and a L2V of 17% . I am now (3 years ago) using a repayment mortgage as well as the pension and chose not to use a ISA to add some security . Reality for me is after leaving school at 16 having my first child at 25 and supporting a stay at home partner (a person choose that most people cant have ). I hope to have a pension that will be close to the lifetime allowance and will use the 25% cash free to pay off the remainder . There is risks and I may yet be ‘unlucky’ but I am still happy with my choice . Life is a set of risks and the best we can do, is to be consciously aware of our decisions . This video should help someone with that process of decision making , thanks again Andy

@rankinr 22 күн бұрын

I have watched this video a few times now. There is so much useful information in it. I am not able to completely take it all in. Everytime I watch it, I learn something new and think darn, if only I had access to this knowledge 20 years ago. I would be a millionaire by now, retired, mortgage free and cycling through the European countryside. I still have some time to pull it back though. So I am switching my mortgage to interest only and paying the difference into my pension. The only problem will be taking the money out of the pension when the time comes and minimising Tax.

@Alban.Bytyqi 2 ай бұрын

Thank you very much for your generous share of your knowledge.

@Appollochan 2 ай бұрын

I'm 34 just about to buy a relatively cheap flat with 25% down. I'm gonna be paying off that mortgage as quick as I can (hopefully 5-6 years). I really can't hack risk, I'd rather feel safer with less money.

@MayureshKadu 3 ай бұрын

Very illuminating topic! Lots and lots of food for thought.

@Mememeeeeeeeee 3 ай бұрын

Reminds me of the endowment market of the 1990s... that didn't always end well. But using the pension as a vehicle, and spreading repayment over a few years to reduce tax on pension withdrawal, seems sensible.

@johnristheanswer 3 ай бұрын

Yes but those who took out endowments in the 70s and early 80s did do well. Swings and roundabouts.

@desireetan7 3 ай бұрын

I love this video very much, esp when you brought us through the roller coaster of the black swan events. Thank you

@danielparson4574 3 ай бұрын

Wow well done on the epic channel and useful information.

@Bracebarian 3 ай бұрын

What a great vLog! Rarely do I make it to the end in one go. Not today.

@Harmaakettu 2 ай бұрын

It would be interesting to see an analysis where one would first prioritise investing in the global stock market for let's say the first 8 years and then switch to prioritising paying off the mortgage for the remaining 7 years. Since stock returns tend to go up over time, earlier investments yield better returns than later investments, on average.

@simonupstone4924 3 ай бұрын

Great explanation James, very interesting. Years ago I was persuaded by James McIntosh and his short view videos on the FT that the 60:40 portfolio could deliver all the returns you need and help you sleep better. I haven't lost that faith despite the losses of 2022.

@JamesShack 3 ай бұрын

Thanks for the comment. Yes, 2022 was an exceptional year for bonds and the 60/40 portfolio. The exception that proves the rule ( I hope).

@DKNW62 3 ай бұрын

Brilliant and comprehensive James, for most people psychologically tricky not to pay mortgauge first instinctively. Hey could you model the pros and cons of commuting part of db pension for cash to invest...could you beat the DB? I know how this works just cant do the maths.

@jsr44444 3 ай бұрын

I paid off my mortgage last year, 10 years early and it wonderful to be mortgage free. My money now goes into my isa and it’s great to watch it grow.

@markbowen3700 3 ай бұрын

Really good video with the human slant on it. I am using a similar approach via pension and you raised some points that I will reconsider. I have no dependants and decent equity in my house so my backup plan is to downsize if unable to work or work longer than planned / derisk with some bonds if returns drop. In the long term I am looking at the increasing availability of Interest Only In Retirement mortgages and curious to see where rates go with these. I'd rather have less equity in the house and more value in the pension funds from an inheritance point of view but recognise that keeping a mortgage would not be for everyone.

@theowenssailingdiary5239 3 ай бұрын

Brilliant! Recently been toying with this myself (before interest rates increased).

@johall3401 Ай бұрын

Very relevant for me as this is my current quandary. I have £400k left on my mortgage and just turned 51 and not much invested in pensions. Good for thought but I think I will look to overpay on my mortgage to have the peace of mind later on. Thanks @james!

@OroborusFMA 3 ай бұрын

Bought my condo in 2011 with a 30 year mortgage at 4.85% interest rate. Paid it off in 2019 because I hate paying interest. This was before I knew about dividend investing and "snow ball" effects. Was probably not the optimal move, in hindsight but not having a mortgage means I pile up savings month by month. Now I'm tempted to buy a retirement home in the Sunbelt but the prices and interest rate are crazy and my dividend investments are just getting rolling.

@85728itsmeee Ай бұрын

A lot of great information here thanks! Pros and cons and strategies aside, for some there is no dollar value you can put on the feel good factor of being mortgage free.