July 2024

Is this the best investment you’ll ever make?

There are plenty of people who want your money. High street banks will try to get you to buy supposed investments linked to the stock market because of the big commissions they get from your cash. And, of course, there are all the ads for ISAs – usually only offering attractive interest rates for the first year then dropping them to near to zero in the hope you’ll not notice you’re being fleeced. There are unit trusts which will pocket 5% of your money when you buy (unless you use a funds supermarket), up to 3% a year for managing your money and another 5% when you sell. And there are pension funds which will give you wonderful projections showing how they will make your money grow, usually using three rates – Low-5%: Medium-7%: High-9%. Unfortunately, most have never even achieved the low rate of 5%, but they have made themselves wealthy with the management charges they make you pay for their underperformance. For the more adventurous, there is spread betting – but beware, if you actually do start winning more times than you lose, the betting company’s computer system may block you every time you make a bad bet so that your losses will always be greater than your gains. If you put your money in any of these or any other savings or investments, you’re probably just achieving one thing – making financial services insiders rich at your expense.

So what can you do? One of the best investments you’ll ever make if you’re a basic rate taxpayer is to pay off your mortgage early. On most mortgages you’ll pay double what you borrow due to interest. So for a £200,000 mortgage, you’ll pay the lender around £400,000. But say you paid £2,000 a year extra back for the first five years on a £200,000 mortgage, then for paying £10,000, you’d save yourself £20,000 and cut 2-3 years off your mortgage. So you’re doubling your money and shortening your repayment time. And, you’re not making some greasy salesperson or incompetent fund manager at your expense. Of course, this may not be true for everyone, but for many people, paying off their mortgage early may be the best investment they will ever make.

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