Mortgage vs. Investments: Navigating Your Savings Strategy

Probably the top financial planning question for clients younger than 60 is what to do with their savings. “Should I pay off the mortgage, or invest the money into funds”

It’s not an easy choice because investing in growth funds, you will expect a higher long term return than the mortgage interest that you would save, but 1 year out of 4 will be a negative return. There could be times when you regret your decision, and at those times, you could abandon a perfectly good strategy.

When repaying the mortgage you know what you are going to get.

So this is a choice between higher expected long term return, or the lower risk more assured approach of reducing debt.

At Windsor Wealth, we don’t have a one solution to fit all. A lot of our clients feel more relaxed with debt reduction because they don’t like the feeling of owing a lot of money. That is valid and totally right for them to point their fire hose at the mortgage. Personally I am very comfortable with funds and shares, as I don’t worry about market fluctuations, and so I prefer to invest than to overpay debt, and we have some clients who have a similar attitude, and it is usually right for them to focus on investment.

But most people are somewhere in the middle, and we advise them to split the difference and allocate 50% of the surplus savings into mortgage overpayments, and 50% into investments where we expect them to outperform the market. If they take this approach they will probably not have feelings of regret down the line, and they can feel reassured that they are dealing with debt, as well as seeking to grow their wealth for the future.

The most important thing in all of this is not the decision that you make, but more that you are taking some responsible action with your savings. Reducing your mortgage is good for the future you, and investing in funds is also good. If we are allocating a decent amount towards our future selves, then this is 80% of the battle. We work with clients to check they are contributing enough to their financial plan to reach their retirement goals, and when they can see they are on track, they are freed up to also spend more money now on whatever it is that makes them happy. You need to be on track to achieve your financial goals, to allow yourself to achieve your life goals.

If you feel you would benefit from financial planning advice, and have the equivalent of a “flight plan” for your retirement, then reach out, and we would be happy to talk to you about your situation and goals.