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I'm planning to carry a large mortgage into early retirement - anyone else?

Including Financial Independence and Retiring Early (FIRE)
GrahamPlatt
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475415

Postby GrahamPlatt » January 22nd, 2022, 7:18 pm

Vand,

What if you’d done what you’re proposing to do in December 2019? How would you have felt come April 2020? Doesn’t bear thinking about eh? Yes, I know the markets have recovered. But. Looking East, there’s a storm brewing.

I accept that it could all work out well, and if so you might regret not taking the opportunity. But then again.

vand
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475427

Postby vand » January 22nd, 2022, 8:36 pm

GrahamPlatt wrote:Vand,

What if you’d done what you’re proposing to do in December 2019? How would you have felt come April 2020? Doesn’t bear thinking about eh? Yes, I know the markets have recovered. But. Looking East, there’s a storm brewing.

I accept that it could all work out well, and if so you might regret not taking the opportunity. But then again.


Like I said, the money ringfenced for the house would be invested quite conservatively in a permanent portfolio style portfolio. On a monthly basis, the PP strategy suffered a drawdown of 4.58% between Jan 2020 and March 2020. Not the worst thing in the world..

I would probably run something slightly more aggressive than the PP, but you get the idea. It wouldn't go all into stocks.

Kantwebefriends
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475441

Postby Kantwebefriends » January 22nd, 2022, 9:47 pm

hiriskpaul wrote: We have a flexible interest only mortgage at BoE base + 0.5%.


We had one before, and during the early part of, retirement. A wonderful device! Proved hugely useful.

As for getting a mortgage when you lack income you could look at the experience of this blogger and at his comment threads. I'm afraid you may have to scroll around a bit.

https://simplelivingsomerset.wordpress.com

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475444

Postby genou » January 22nd, 2022, 9:55 pm

GrahamPlatt wrote:Vand,

What if you’d done what you’re proposing to do in December 2019? How would you have felt come April 2020? Doesn’t bear thinking about eh? Yes, I know the markets have recovered. But. Looking East, there’s a storm brewing.

I accept that it could all work out well, and if so you might regret not taking the opportunity. But then again.


Funnily enough, if you are rich enough this is a non-issue, because the mortgage will be arranged to run until the borrower dies ( and will move house if necessary ); nobody expects it to be repaid. The absence of a cliff edge event means that you can take a much more relaxed view of the debt - the only thing that could change is the interest rate, The norm is that the LTV is such that negative equity is a black swan event, so the lender is equally relaxed .

Having debt to offset against the residence is an integral part of IHT planning, and you are comparing interest charges against a 40% tax hit. It only works for IHT if you give away the money borrowed, so perhaps not immediately relevant to Vand; but it does show that the proposal to stay geared is not out of the ordinary.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475527

Postby puffster » January 23rd, 2022, 12:12 pm

Vand,

What is your strategy if mortgage interest rates go up to say 10% (I'm making this up of course) and the markets look overpriced? In particular I'm thinking that you might end up hitting Capital Gains Tax problems if most of your money is in dealing accounts when (if) you sell to reduce your IO mortgage?

Regards, Puffster

vand
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475543

Postby vand » January 23rd, 2022, 12:59 pm

puffster wrote:Vand,

What is your strategy if mortgage interest rates go up to say 10% (I'm making this up of course) and the markets look overpriced? In particular I'm thinking that you might end up hitting Capital Gains Tax problems if most of your money is in dealing accounts when (if) you sell to reduce your IO mortgage?

Regards, Puffster


That's why I was looking at a 10yr fixed.

It's also worth bearing in mind that an inflationary environment where interest rates are 10% will also work to erode the real value of the outstanding principal over time, too.

But, lets face it, if interest rates go to 10%, I am not the only one who is going to be in trouble.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475695

Postby Fluke » January 24th, 2022, 10:49 am

Vand, something else to consider is the portability of your mortgage. Things can and do change, circumstances that you had not anticipated mean that you have to or just want to move to a property with a similar or even higher value to your current abode, and you need that mortgage regardless of how your investments are doing. Let's say this event occurs 3 or 4 years into retirement. You'll contact your mortgage company and say you've accepted an offer on your house and you've had an offer accepted on the place you want to buy, I don't want to borrow any more, I just want to port my existing mortgage across to the new house.

I tried doing exactly this in 2013 when my own circumstances changed and I had to move, First Direct were great they said yes of course we'll honour your existing terms (ridiculously low interest rate - 0.1% above base) but it's not quite as simple as porting the mortgage across, I had to essentially reapply for a mortgage, filling out all the forms again, jumping through all the hoops as if I were applying for the new mortgage, including providing 3 years worth of income - or in my case company accounts.

3 or 4 years into retirement means you don't have any history of income to show, this tells your mortgage company your circumstances have changed, they may not allow you to port it across and they might even now review your current arrangements.

Something along these lines could scupper your plans. Not a problem though so long as you don't ever want to move.

hiriskpaul
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475705

Postby hiriskpaul » January 24th, 2022, 11:41 am

genou wrote:
GrahamPlatt wrote:Vand,

What if you’d done what you’re proposing to do in December 2019? How would you have felt come April 2020? Doesn’t bear thinking about eh? Yes, I know the markets have recovered. But. Looking East, there’s a storm brewing.

I accept that it could all work out well, and if so you might regret not taking the opportunity. But then again.


Funnily enough, if you are rich enough this is a non-issue, because the mortgage will be arranged to run until the borrower dies ( and will move house if necessary ); nobody expects it to be repaid. The absence of a cliff edge event means that you can take a much more relaxed view of the debt - the only thing that could change is the interest rate, The norm is that the LTV is such that negative equity is a black swan event, so the lender is equally relaxed .

Having debt to offset against the residence is an integral part of IHT planning, and you are comparing interest charges against a 40% tax hit. It only works for IHT if you give away the money borrowed, so perhaps not immediately relevant to Vand; but it does show that the proposal to stay geared is not out of the ordinary.

This is my thinking. Inheritace tax nil rate bands top out at £1m for a couple leaving proceeds from their principle residence to children and/or grandchildren. If you live in London £1m does not go very far, so not just a consideration for the rich. If we took out say a £250k mortgage, somehow repayable only on death, we could give the money away and/or spend it instead of drawing from our SIPPs. When we die that is £100k less IHT to be paid.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475706

Postby puffster » January 24th, 2022, 11:42 am

vand wrote:
puffster wrote:Vand,

What is your strategy if mortgage interest rates go up to say 10% (I'm making this up of course) and the markets look overpriced? In particular I'm thinking that you might end up hitting Capital Gains Tax problems if most of your money is in dealing accounts when (if) you sell to reduce your IO mortgage?

Regards, Puffster


That's why I was looking at a 10yr fixed.

It's also worth bearing in mind that an inflationary environment where interest rates are 10% will also work to erode the real value of the outstanding principal over time, too.

But, lets face it, if interest rates go to 10%, I am not the only one who is going to be in trouble.

10% used to be quite common...

Regards, Puffster

vand
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475729

Postby vand » January 24th, 2022, 12:51 pm

puffster wrote:
vand wrote:
puffster wrote:Vand,

What is your strategy if mortgage interest rates go up to say 10% (I'm making this up of course) and the markets look overpriced? In particular I'm thinking that you might end up hitting Capital Gains Tax problems if most of your money is in dealing accounts when (if) you sell to reduce your IO mortgage?

Regards, Puffster


That's why I was looking at a 10yr fixed.

It's also worth bearing in mind that an inflationary environment where interest rates are 10% will also work to erode the real value of the outstanding principal over time, too.

But, lets face it, if interest rates go to 10%, I am not the only one who is going to be in trouble.

10% used to be quite common...

Regards, Puffster


It did indeed, but government debt back then was below 40% of GDP while today its over 100% of GDP, so the government itself cannot afford those sort of interest rates.

I am not saying that rates can never go back to 10%, but a lot has to happen between now and then if it ever did. And, I do hold assets that would benefit from the disorder that such a trend would bring.

And, it's worth remembering that if you have been arranging your finances ever since the 1980s by stress testing home repayments at 10% then you would have by and large missed out on a great portion of the greatest asset bull market the UK has ever seen.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475776

Postby Charlottesquare » January 24th, 2022, 3:21 pm

hiriskpaul wrote:
genou wrote:
GrahamPlatt wrote:Vand,

What if you’d done what you’re proposing to do in December 2019? How would you have felt come April 2020? Doesn’t bear thinking about eh? Yes, I know the markets have recovered. But. Looking East, there’s a storm brewing.

I accept that it could all work out well, and if so you might regret not taking the opportunity. But then again.


Funnily enough, if you are rich enough this is a non-issue, because the mortgage will be arranged to run until the borrower dies ( and will move house if necessary ); nobody expects it to be repaid. The absence of a cliff edge event means that you can take a much more relaxed view of the debt - the only thing that could change is the interest rate, The norm is that the LTV is such that negative equity is a black swan event, so the lender is equally relaxed .

Having debt to offset against the residence is an integral part of IHT planning, and you are comparing interest charges against a 40% tax hit. It only works for IHT if you give away the money borrowed, so perhaps not immediately relevant to Vand; but it does show that the proposal to stay geared is not out of the ordinary.

This is my thinking. Inheritace tax nil rate bands top out at £1m for a couple leaving proceeds from their principle residence to children and/or grandchildren. If you live in London £1m does not go very far, so not just a consideration for the rich. If we took out say a £250k mortgage, somehow repayable only on death, we could give the money away and/or spend it instead of drawing from our SIPPs. When we die that is £100k less IHT to be paid.


You could just buy £250k of AIM shares and after two years taxable estate dropped £250k.

My big concern would be changes with banks and their lending criteria, rolling over deals, changes to CGT rates if invested assets not sheltered and managing it all as I get older. We are now mortgage free (61) and frankly I would not want the grief of dealing with it all in ten years time let alone twenty.

My late father did this, retained a mortgage on one of his houses, catch was whilst he was smart with money during his working life (Solicitor with a niche with trusts and landed estates) he lost his edge throughout retirement, ISAs earning 0.10% default rate as he had not bothered checking rates, he took his eye off the ball and I only found out when he had his first cancer scare age 82, in reality I ought to have been checking what he was doing two or three years earlier.

It all sounds like a great idea but people tend not to detect the erosion of their own acumen due to advancing years, it is what others observe of you, so to me KISS is the way to go.

hiriskpaul
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475817

Postby hiriskpaul » January 24th, 2022, 6:06 pm

Charlottesquare wrote:
hiriskpaul wrote:
genou wrote:
GrahamPlatt wrote:Vand,

What if you’d done what you’re proposing to do in December 2019? How would you have felt come April 2020? Doesn’t bear thinking about eh? Yes, I know the markets have recovered. But. Looking East, there’s a storm brewing.

I accept that it could all work out well, and if so you might regret not taking the opportunity. But then again.


Funnily enough, if you are rich enough this is a non-issue, because the mortgage will be arranged to run until the borrower dies ( and will move house if necessary ); nobody expects it to be repaid. The absence of a cliff edge event means that you can take a much more relaxed view of the debt - the only thing that could change is the interest rate, The norm is that the LTV is such that negative equity is a black swan event, so the lender is equally relaxed .

Having debt to offset against the residence is an integral part of IHT planning, and you are comparing interest charges against a 40% tax hit. It only works for IHT if you give away the money borrowed, so perhaps not immediately relevant to Vand; but it does show that the proposal to stay geared is not out of the ordinary.

This is my thinking. Inheritace tax nil rate bands top out at £1m for a couple leaving proceeds from their principle residence to children and/or grandchildren. If you live in London £1m does not go very far, so not just a consideration for the rich. If we took out say a £250k mortgage, somehow repayable only on death, we could give the money away and/or spend it instead of drawing from our SIPPs. When we die that is £100k less IHT to be paid.


You could just buy £250k of AIM shares and after two years taxable estate dropped £250k.

My big concern would be changes with banks and their lending criteria, rolling over deals, changes to CGT rates if invested assets not sheltered and managing it all as I get older. We are now mortgage free (61) and frankly I would not want the grief of dealing with it all in ten years time let alone twenty.

My late father did this, retained a mortgage on one of his houses, catch was whilst he was smart with money during his working life (Solicitor with a niche with trusts and landed estates) he lost his edge throughout retirement, ISAs earning 0.10% default rate as he had not bothered checking rates, he took his eye off the ball and I only found out when he had his first cancer scare age 82, in reality I ought to have been checking what he was doing two or three years earlier.

It all sounds like a great idea but people tend not to detect the erosion of their own acumen due to advancing years, it is what others observe of you, so to me KISS is the way to go.

Yes, that is a good point about decreasing faculties and hassle. Not sure I would want an AIM portfolio in my dotage though! I can see the IHT status of those vanishing before long.

There seem to be things called Interest Only Retirement Mortgages that look ok in some respects, eg from Nationwide: https://www.nationwide.co.uk/mortgages/ ... rest-only/

The thing is though, there appears to be a lock-in after the intial discounted rate expires and then a hefty standard mortgage rate currently at over 3% above BoE base. Not a rate I would want to pay.

When the time comes to repay my existing IO mortgate, maybe a 10 year fix would be interesting then pay it off at the end of the fixed period.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#475869

Postby Charlottesquare » January 24th, 2022, 9:38 pm

hiriskpaul wrote:
Charlottesquare wrote:
hiriskpaul wrote:
genou wrote:
GrahamPlatt wrote:Vand,

What if you’d done what you’re proposing to do in December 2019? How would you have felt come April 2020? Doesn’t bear thinking about eh? Yes, I know the markets have recovered. But. Looking East, there’s a storm brewing.

I accept that it could all work out well, and if so you might regret not taking the opportunity. But then again.


Funnily enough, if you are rich enough this is a non-issue, because the mortgage will be arranged to run until the borrower dies ( and will move house if necessary ); nobody expects it to be repaid. The absence of a cliff edge event means that you can take a much more relaxed view of the debt - the only thing that could change is the interest rate, The norm is that the LTV is such that negative equity is a black swan event, so the lender is equally relaxed .

Having debt to offset against the residence is an integral part of IHT planning, and you are comparing interest charges against a 40% tax hit. It only works for IHT if you give away the money borrowed, so perhaps not immediately relevant to Vand; but it does show that the proposal to stay geared is not out of the ordinary.

This is my thinking. Inheritace tax nil rate bands top out at £1m for a couple leaving proceeds from their principle residence to children and/or grandchildren. If you live in London £1m does not go very far, so not just a consideration for the rich. If we took out say a £250k mortgage, somehow repayable only on death, we could give the money away and/or spend it instead of drawing from our SIPPs. When we die that is £100k less IHT to be paid.


You could just buy £250k of AIM shares and after two years taxable estate dropped £250k.

My big concern would be changes with banks and their lending criteria, rolling over deals, changes to CGT rates if invested assets not sheltered and managing it all as I get older. We are now mortgage free (61) and frankly I would not want the grief of dealing with it all in ten years time let alone twenty.

My late father did this, retained a mortgage on one of his houses, catch was whilst he was smart with money during his working life (Solicitor with a niche with trusts and landed estates) he lost his edge throughout retirement, ISAs earning 0.10% default rate as he had not bothered checking rates, he took his eye off the ball and I only found out when he had his first cancer scare age 82, in reality I ought to have been checking what he was doing two or three years earlier.

It all sounds like a great idea but people tend not to detect the erosion of their own acumen due to advancing years, it is what others observe of you, so to me KISS is the way to go.

Yes, that is a good point about decreasing faculties and hassle. Not sure I would want an AIM portfolio in my dotage though! I can see the IHT status of those vanishing before long.

There seem to be things called Interest Only Retirement Mortgages that look ok in some respects, eg from Nationwide: https://www.nationwide.co.uk/mortgages/ ... rest-only/

The thing is though, there appears to be a lock-in after the intial discounted rate expires and then a hefty standard mortgage rate currently at over 3% above BoE base. Not a rate I would want to pay.

When the time comes to repay my existing IO mortgate, maybe a 10 year fix would be interesting then pay it off at the end of the fixed period.


AIM to me is an edge of portfolio product, I think I would want a goodly tranche of core sound assets and a sliver in AIM saving 40% post a two year holding period.

I suspect we will likely try to hold on to the pensions, the house and savings, say up to a total of £1m , a small AIM tranche and offload the rest, it of course helps that we are not in the SE so £500k is the house and £500k the liquid savings , at 61/62 hopefully we have time to wait to ensure children make sound decisions (one married one in long term relationship so looking positive)

Effectively a waiting game, can I trust the kids with our work or should we wait a little longer to ensure they are settled?

vand
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#476316

Postby vand » January 26th, 2022, 2:04 pm

hiriskpaul wrote:
There seem to be things called Interest Only Retirement Mortgages that look ok in some respects, eg from Nationwide: https://www.nationwide.co.uk/mortgages/ ... rest-only/

The thing is though, there appears to be a lock-in after the intial discounted rate expires and then a hefty standard mortgage rate currently at over 3% above BoE base. Not a rate I would want to pay.

When the time comes to repay my existing IO mortgate, maybe a 10 year fix would be interesting then pay it off at the end of the fixed period.


Interesting... that lenders are beginning to recognise the market for such products and people who want to do this without having the whole "I don't need to have a job" conversation.

The rates don't appear that attractive eg 2.59% for 5yr fixed is at least 1% more than a competitive standard mortgage, although there are no product fees.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#476815

Postby anniesdad » January 28th, 2022, 11:24 am

Yes I’m with you. I don’t consider myself an expert but my thoughts …

Just got a 5 year fixed mortgage at 1.7% and invested it. Confident that I can beat 1.7%. And if I wasn’t confident I wouldn’t be in this board - surely we’re all here because we’ve all proved to ourselves that we can exceed that rate on our investments?

I accept that we all have different attitudes to risk and this changes between young retired and old retired. Fixing the mortgage rate for 5 or 10 years reduces the risk massively.

And mortgage rates less than inflation just seems to good to be true.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#477098

Postby TUK020 » January 29th, 2022, 4:30 pm

anniesdad wrote:Yes I’m with you. I don’t consider myself an expert but my thoughts …

Just got a 5 year fixed mortgage at 1.7% and invested it. Confident that I can beat 1.7%. And if I wasn’t confident I wouldn’t be in this board - surely we’re all here because we’ve all proved to ourselves that we can exceed that rate on our investments?

I accept that we all have different attitudes to risk and this changes between young retired and old retired. Fixing the mortgage rate for 5 or 10 years reduces the risk massively.

And mortgage rates less than inflation just seems to good to be true.

Until the market crashes?

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#477156

Postby anniesdad » January 29th, 2022, 8:34 pm

I reckon the market will crash in the OP’s 10 year window. Just like it has done in the last 10 years. I also reckon it will bounce back like it has done In The last 10 years. If you are talking about a bigger crash than that then everyone in here is in trouble because I think we’re all relying on the often mentioned 4% rule or something similar and that won’t be holding out any more. Down to your own attitude on risk. If you believe in 4% rule go for it, if you don’t then don’t. But if youre predict ing a market crash what do YOU invest in???

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#477213

Postby TUK020 » January 30th, 2022, 8:59 am

anniesdad wrote:I reckon the market will crash in the OP’s 10 year window. Just like it has done in the last 10 years. I also reckon it will bounce back like it has done In The last 10 years. If you are talking about a bigger crash than that then everyone in here is in trouble because I think we’re all relying on the often mentioned 4% rule or something similar and that won’t be holding out any more. Down to your own attitude on risk. If you believe in 4% rule go for it, if you don’t then don’t. But if youre predict ing a market crash what do YOU invest in???

I agree with you about the likelihood of crashes and recoveries.
I stay largely invested in equities and ITs, with a small portion in Gold/Gold producers ETFs as insurance, and a small portion in cash to provide a defensive interval - not having to sell in down markets.
What I have decided that I don't need to do is gear up by using borrowings that may fall due while the market is taking its time recovering. A risk that would not help me sleep at night (or that I could persuade my wife to back), for additional gain that I can survive without.

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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#477257

Postby Brodes » January 30th, 2022, 12:16 pm

I’m late 40s, and I have always carried a (big) mortgage in addition to my investment portfolio. Almost certainly will continue to do so until the end.

I (well, my family) have a modest family home, 11 years of family annual expenses in my pension, and 16 years in ISAs and post tax accounts. 6 months in cash. The mortgage (5 year fix, 0.94%) is 5 years of expenses. I don’t count the capital repayment as an expense. And a bit set aside for the children, which I mentally ringfence/ignore. Not anticipating receiving inheritance. Wife and I are around 6 years short of full state pension.

Around 10% of the portfolio is in a HYP. The rest is 1:1 VUSA:VWRL. No bonds. No BTL. Middle class southern England expenses. More frugal than most. So, excluding the children’s stash, I make that 15% leveraged. Today at least.

I suppose I’ve always been an aggressive investor. Seeking riches over predictability. Always wanted to have the freedom to retire early with a decent income. But I’m perhaps hung up on the notion that I want the portfolio to grow in perpetuity. To have ‘won the game’. Was very frugal in early years, perhaps excessively so.

My first big investment move was in around 2003 when I remortgaged my flat to the max, and invested in HYP. Thanks PYAD for getting me started!

The maths of leverage makes sense but I must confess that it is not an easy ride. In late 2007 I was up a lot. Maybe 5 years gross salary at the time. It felt incredible. I envisaged a life of travel and adventure financed by my financial genius. A few months later I went below zero. Ouch. Didn’t sell. But felt pretty silly. Lesson: leverage with mortgage not margin loan.

Leveraged up again in June 2011 to buy more HYP and some UK equity income trusts. Then gradually moved towards global ETFs. That worked out well, although I did seem to pick a disproportionate number of HYP losers. Wood group, Carillon, UK banks I’m looking at you!

The psychological stress of a big leveraged loss is not to be underestimated. It can make you do unwise things. In the depths of March/April 2020 I despaired at HYP underperformance and sold a big chunk (BT, VOD, BP, Shell, AstraZeneca,TUI, ULVR, SSE, AAL, BHP, London Metric, sliced BAE, GSK, HSBC) and put proceeds into VUSA and VWRL. In hindsight that was a bad move, but not as bad as cashing out. At the time I had additional borrowings, so I was around 50% leveraged at the bottom of the market. Frankly, I was bricking it that I would undo decades of saving, so I moved from the perceived risk of individual shares (in declining industries?) to diversified ETFs.

Also in hindsight, I might have made worse decisions had I not had a steady solid income coming in monthly. Had I been e.g. a contractor I might have cracked.

So, long story short, I think that leverage will probably boost returns, but the stress (and elation) is leveraged too. The risk of emotive bad decisions is elevated. If I were to wind back the clock, I would: leverage to the max, buy ETFs/investment trusts, avoid individual shares, be frugal, earn/save as much as poss, and never ever sell or change strategy to mitigate risk. Also be aware that dividends are physiologically easier to spend than e.g. selling shares.

In retirement the assets financed by the debt will hopefully grow in excess of the interest.

Cheers!
Brodes

anniesdad
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Re: I'm planning to carry a large mortgage into early retirement - anyone else?

#477527

Postby anniesdad » January 31st, 2022, 2:11 pm

I can’t be sure but im thinking most of us on here because weve geared our main investment and are reaping that success. Combined with an erosion of that debt due to inflation. Ok it was probably a mortgage invested In property but it was still somewhat risky, property values could have crashed, mortgage rates could have spiralled. I don’t see any fundamental difference. It’s understandable that risk should be reduced as we age but if we’re dependent on an income from the stock market we’re already accepting risk.


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