Interest rates

[Amarillo]

Not just JSIPPs. I started a new SIPP after I retired and put my original SIPP into drawdown. I’m allowed by HMRC to put £2880 pa into it up until I’m 75. My £2880 each year morphs into £3600

It is magic money.

 

[Amarillo]

Don’t do it. Ever.

I’ve been thinking about what you are saying here. Never borrow to invest - ever.

What would be the better position.

1. £1,000,000 in investment property, or;
2. £1,000,000 in investment property, £500,000 mortgage and £500,000 in shares?

I would argue that #2 is better as it is a more balanced investment portfolio.

Therefore, if you ever find yourself in the fortunate position to have £1m in investment property mortgage to 50% and put that cash into S&Ss, and trickle feed it from S&Ss into a S&Ss ISA.

It is sort of what Clare and I are doing. We are prioritising maxing out our ISAs, our boys JISAs and their JSIPPs over repaying mortgage debt.

 

[Mansfieldman750]

I’ve been thinking about what you are saying here. Never borrow to invest - ever.

What would be the better position.

1. £1,000,000 in investment property, or;
2. £1,000,000 in investment property, £500,000 mortgage and £500,000 in shares?

I would argue that #2 is better as it is a more balanced investment portfolio.

Therefore, if you ever find yourself in the fortunate position to have £1m in investment property mortgage to 50% and put that cash into S&Ss, and trickle feed it from S&Ss into a S&Ss ISA.

It is sort of what Clare and I are doing. We are prioritising maxing out our ISAs, our boys JISAs and their JSIPPs over repaying mortgage debt.

Hmm, good question, as the politicians say when they get asked an awkward one.
Going back to the video guy, he is recommending an Asset Allocation of 100% US equities. No bonds, no property, sit on a year‘s cash.
Then do nothing and wait a long time. Trouble with that is life tends to get in the way - kids go to uni, you need to change the car, whatever.
If you look at your own Asset Allocation, you were pretty much 100% rental property ( I’m not counting your own house ) and you have done fantastically well out of it. When I said genius, there definitely was a stroke of genius to buying 5 buy to lets and borrowing at record low interest rates which lasted a record long time.
So give yourself a gold star for that.
I think you held on too long. 2021 when the stamp duty holiday was coming to an end was the time to get out. Yes I know about the CGT liability.
Now there is no easy money for buy to letters and you are where you are.
So, in answer to the question….tbc

 

[Barry Chuckle]

The never borrow to invest statement is flawed, businesses do this all the time, it's the only way most of them can grow.

 

[Mansfieldman750]

First a confession, I did borrow to invest once.
Cast your mind back to the end of December 2019. The FTSE 100 was at 7645. There was an item low down in the news about a virus epidemic in China. The FTSE held up through January, wavered a bit in February, and I am starting to think there could be an opportunity coming up here. Trouble was I didn’t have any ready cash, probably bought a motorbike or something, but I had a couple of Credit Cards which kept sending me emails inviting me to do a balance or money transfer, so I said right, I’ll take you up on that, and maxed them both out on money transfers. From memory I think it was at 4.9% over 2 years, no upfront fee.
So I had my war-chest and started buying the FTSE mid March. First lockdown was announced 20 March, to commence 26 March, and FTSE dropped like a stone to 5190.
I was all in and by the end of the year FTSE was pushing 7000 and I had cleared the Credit Cards.

Why did a I do it ? Well 2 things kept coming back to me :
1) That old thing about the only 4 true words in the Bible being this too shall pass.
2) Another of Warren Buffet‘s sayings “ be greedy when others are fearful and be fearful when others are greedy.

So now to answer the question….

 

[Mansfieldman750]

Personally I would get out of buy to let but I know you are not going to.
Do what you are doing and don’t get despondent when stock markets fall and you are showing a loss. On the contrary be happy. As my mate Warren says.
You put diesel in the van, you want cheap diesel.
You drink beer, you want cheap beer.
You are buying shares, you want cheap shares.

Stay the course and you will do fine. Good Luck !!!

I never did answer the question, did I ? Should’ve been a politician

 

[Mansfieldman750]

The never borrow to invest statement is flawed, businesses do this all the time, it's the only way most of them can grow.

Absolutely right, the world would come to an end if people and businesses couldn’t borrow. It nearly did in 2008, remember.
The question was is it wise for an individual to borrow money to buy shares and my answer to that it still no even if I broke the rule once.

 

[Amarillo]

Hmm, good question, as the politicians say when they get asked an awkward one.
Going back to the video guy, he is recommending an Asset Allocation of 100% US equities. No bonds, no property, sit on a year‘s cash.
Then do nothing and wait a long time. Trouble with that is life tends to get in the way - kids go uni, you need to change the car, whatever.
If you look at your own Asset Allocation, you were pretty much 100% rental property ( I’m not counting your own house ) and you have done fantastically well out of it. When I said genius, there definitely was a stroke of genius to buying 5 buy to lets and borrowing at record low interest rates which lasted a record long time.
So give yourself a gold star for that.
I think you held on too long. 2021 when the stamp duty holiday was coming to an end was the time to get out. Yes I know about the CGT liability.
Now there is no easy money for buy to letters and you are where you are.
So, in answer to the question….tbc

They do mention buy-to-let, and they also mention diversifying portfolio as you get older. But it is only a mention.

We have over 85% equity in our BTLs. (£185,000 of borrowing on a £1.5m portfolio). Rents are ballooning, and in our area of SE London, property prices are stable. We are OK hanging on to our flats.

After a period of stagnation in the property market there is often a period of rapid price growth. So in five years’ time or so expect to see around 10% pa price growth. Add that to our 5-6% yield and we have 16%. But that is just speculation.

Our mortgage interest payments are set at around £860 per month (£688 if I take into account the 20% tax credit) for the next five years, and rental income £6250 per month and rising.

We are also building up our S&Ss ISAs by £40,000 per year and taking the tax free dividends (about 3%), so our income should be increasing by about £1200 tax exempt per year. At the end of this next five year period we should be getting £8,400 extra tax free per year, not accounting for capital growth.

It’s a comfortable position to be in.

 

[andyinluton]

The never borrow to invest statement is flawed, businesses do this all the time, it's the only way most of them can grow.

Borrowing via a business usually means your personal assets are safe & the only people that lose out are the companies creditors.

 

[Mansfieldman750]

They do mention buy-to-let, and they also mention diversifying portfolio as you get older. But it is only a mention.

We have over 85% equity in our BTLs. (£185,000 of borrowing on a £1.5m portfolio). Rents are ballooning, and in our area of SE London, property prices are stable. We are OK hanging on to our flats.

After a period of stagnation in the property market there is often a period of rapid price growth. So in five years’ time or so expect to see around 10% pa price growth. Add that to our 5-6% yield and we have 16%. But that is just speculation.

Our mortgage interest payments are set at around £860 per month (£688 if I take into account the 20% tax credit) for the next five years, and rental income £6250 per month and rising.

We are also building up our S&Ss ISAs by £40,000 per year and taking the tax free dividends (about 3%), so our income should be increasing by about £1200 tax exempt per year. At the end of this next five year period we should be getting £8,400 extra tax free per year, not accounting for capital growth.

It’s a comfortable position to be in.

When you say you are taking the dividends, do you mean you are taking the cash out of the ISA ?

 

[Barry Chuckle]

Borrowing via a business usually means your personal assets are safe & the only people that lose out are the companies creditors.

I worked for a major bank for many years, and when lending to companies the bank almost always insisted on personal guarantees as most businesses had insufficient assets as collateral, Therefore it was usual for personal assets (usually houses) to be at risk in the event of default.

 

[andyinluton]

I worked for a major bank for many years, and when lending to companies the bank almost always insisted on personal guarantees as most businesses had insufficient assets as collateral, Therefore it was usual for personal assets (usually houses) to be at risk in the event of default.

I borrow against sites & refinance against partially complete buildings, if it needed a personal guarantee I wouldn't be borrowing.
The trick is to take an option on a site, get planning, it's then worth more than the basic land cost that you are going to pay for it. The only risk is not getting planning as if you don't you've lost your planning fees & the cost of taking the option.

 

[Amarillo]

When you say you are taking the dividends, do you mean you are taking the cash out of the ISA ?

Yes - the dividends don’t get reinvested. It sounds a bit counterintuitive: pay in £20,000 per year and take out about 3% of the whole pot. The net effect will be to reduce the amount we pay in each year, and eventually (if we live long enough) take out more than we pay in.

 

[Mansfieldman750]

Yes - the dividends don’t get reinvested. It sounds a bit counterintuitive: pay in £20,000 per year and take out about 3% of the whole pot. The net effect will be to reduce the amount we pay in each year, and eventually (if we live long enough) take out more than we pay in.

Hmm, what you are going to see is your sons’ JISAs racing away from yours in years to come because of dividends re-invested.
As long as you know why, fair enough.

 

[Amarillo]

Hmm, what you are going to see is your sons’ JISAs racing away from yours in years to come because of dividends re-invested.
As long as you know why, fair enough.

I hope so. And in time I expect we will drain our ISAs completely and gift lump sums to our sons. While ISAs are a tax free package for us, they are not exempt from IHT.

 

[willwander]

Just to illustrate volatility of stock markets.

View attachment 116034

Interesting. S&P 500 is definitely not sure and steady. Can’t time the market, can get lucky or unlucky. Sometimes very unlucky. Like 52 years, 26 years and 13 years of ZERO inflation-adjusted returns unlucky.

.

 

[Amarillo]

Interesting. S&P 500 is definitely not sure and steady. Can’t time the market, can get lucky or unlucky. Sometimes very unlucky. Like 52 years, 26 years and 13 years of ZERO inflation-adjusted returns unlucky.

View attachment 116150.

If the sequence continues we will soon have 6.5 years of zero returns.

 

[willwander]

If the sequence continues we will soon have 6.5 years of zero returns.

Ha, I mean it is somewhat contrived because its cherry picking the worst case scenarios, but maybe.