Mortgage overpayment - Seeking advice :)

[vand]

On 05/07/2019 at 15:42, cravethatcoin said:

Personally I do not like pensions, they are killed by inflation and inflation is only going to get worse over time. I'm 29, by the time I can take out my pension (the age of which will increase a lot by that time) it's going to be worth considerably less that I believe will nullify the 25-38% breaks. Even looking at what £1 could purchase 15 years ago compared to now is shocking. Look at a mars bar for example, when I was 10 it cost 30p and was large. Now a mars bar will cost a good 60-80p and it's half the size it used to be.  Lets say I can take my pension at 75 that's 46 years of inflation my pension will suffer. I prefer to have control of my wealth and access to it when needed.

 

Well the idea is that  you don't leave  it as cash in your pension; a pension is just a wrapper with tax advantages. You put the cash to work by buying investments within that wrapper that will handily beat inflation over time.

[cravethatcoin]

On 07/07/2019 at 17:26, vand said:

Well the idea is that  you don't leave  it as cash in your pension; a pension is just a wrapper with tax advantages. You put the cash to work by buying investments within that wrapper that will handily beat inflation over time.

That is true but a with a pension it is tied up for years and the rules of which to play by have and will continue to change over time. There will be more and more restrictions between now and when I retire. Then I believe you are also heavily taxed in certain situations if you take out a lump sum. So the tax breaks sound great but when considering inflation, the risks and restrictions of a mention and the potential tax when pulling the money out it seems insane to me. I would rather invest my money and own assets that generate cash flow.

The tax advantages are there because if they didn't exist then no one would tie their money up and take on those restrictions compared to investing their self and having full control.

Also in terms of inflation there is no way that the official inflation rate is accurate. I would not be surprised if inflation right now is more like 10%. Perhaps a strange example but Doritos crisps, used to be 200 grams 2 years ago. They then dropped to 150 grams about a year ago and just yesterday I see they are now selling 100 gram bags. That's a 50% reduction in size I have seen in 2 years and the price has remained the same. The bigger sizes do still exist depending on store but they are testing the impact the smaller size has on consumers and over time the 100 gram bag will become the biggest size. Petrol prices are through the roof right now and the media isn't talking about it.

[Michal]

Basic food (with low premium) and energy are best indicators of real inflation, because they are hardest to manipulate and can't take hit on profit margin as high premium items. Pentium 5 u5400 went down by 30pounds since last year that is 25% down, bread went up from 45p to 55p that is 22% BAM inflation 3%, "we have to encourage inflation " CBA say 😉

I know it is not how it exactly goes but shows the big picture. Inflation ca be easy manipulated by statistic data, but purchase power can't. So if you get aware that your money loose more than they tell you it make most sense to pay your mortgage asap.

You can say inflation should eats debt which is good, isn't it? Remember that your wage is related more less to official inflation not to purchase power, but still it is better to pay as long as you can until one point, adjustment to real inflation rate which will happen at some point. 99% of credits have adjustable yearly rate and now imagine inflation break out to 10%, now your credits are at 3-4 % each can you imagine paying 4 time more for your monthly house payment ?

Banks makes huge money coz they barrow only 3% from their own money, 97% of money which you borrow is coming from CBA (they get it out of thin air ) so they earn 75-100% ROI per year that is why they want you to pay as long as possible and if rates goes up it is pay day for them.

[vand]

The TFLS is exactly what it says - up to 25% tax free, at least until the rules change. The only circumstances where it is not tax free is if you have exceeded the lifetime allowance, which is currently £1.03m. 

Actually the rules have changed for to our advantage quite recently with flexible drawdown which opens up loophole possibilities like pension recycling.

Inflation is always a real danger to presents a hurdle which all investments need to overcome - I don't know why you might think that it is a special threat to pensions.

Look, it's your money and you are free to do with it what you want. Paying down the mortgage is a good move, but your skepticism on pensions is clouding your judgement. I could make the very valid argument that as your money is tied up for a long time in a pension, it is also the vehicle that is most likely to keep you buying and fully invested during bear markets, which is precisely when you want to be buying. 

If you want to build long term wealth then you need all the help you can get. Pensions are an absolute gifthorse in this regard, and yet when presented with them, you find a lot of people looking them directly in the mouth instead of taking full advantage.

[cravethatcoin]

Great discussions.

Perhaps I have a lack of understanding but I cannot get my head around pensions in terms of tying my money up for so long.

My dad is from traditional finance, ironically he worked for NatWest for 20 years. Also ironically he is a pension advisor and is very big on pensions. So I do have a pension which I setup partly to keep my dad happy and also because I don't really have much to loose being part of my income. So I suppose I have the best of both worlds but my goal is to build wealth outside of banks/traditional investments which is the main reason I got into previous metals investing. My long term goal is to invest into cash generating assets that will product cash flow that will act as a inflation adjusted pension.

[Michal]

In that case study subject of house hacking, it might help.

[vand]

I would advocate diversification. 

There is nothing wrong with traditional paper assets, and there is nothing wrong with metals investing. A balanced and diversified portfolio is much more than the sum of its parts because it will provide resilience and diversification which any single component cannot by itself. This is the underlying message I preach when I discuss topics like the permanent portfolio..