Spread the Word

I overheard a conversation in my work the other week, which went along these lines:

“So I intend to overpay on my mortgage by £250 a month and get it down as fast as I can”.  I was surprised – people talking openly, and seriously, about personal finance in the office?! I wandered over with my cup of coffee to join in.

“I know”, replied the colleague. “I have money sitting in a cash ISA doing nothing. I think maybe I should pay a lump of the mortgage off with it instead, but it’d make such a small dent in the scheme of things.”

It was at this point I felt I must rip my shirt open to display my blue T Shirt with MMM (Or ERE) – that’s Mr Money Mustache or Early Retirement Extreme – emblazoned across the chest.

“Ehrm, why would you want to do that?”, I asked. “If your mortgage is costing 2% and you could invest the money and get maybe 7%, wouldn’t you be better sticking it into a stocks and shares ISA?”

“Well”, replied my colleague, “I understand mortgages. I don’t have a clue about the stock market”. The other bloke nodded vigorously in agreement.

I asked them if they’d heard of of Index trackers?” Blank looks. Passive investing? Nada. Getting a life? (only kidding). We chatted on for a few minutes with me thinking that this was one of the few informal conversations about finance and investing I’d ever had at work. I offered to send across some links that might let them look more into things and paced back to my desk.

Now, what to send my colleagues to get them started on the road of passive investing? Well, Monevator of course, but when I clicked over to the site and looked at it from the perspective of a complete newbie I wondered if it was ever so slightly intimidating? I picked the post entitled “Five Reasons You’ll Love Index Investing”, and noticed that almost by the second paragraph references were being made to ETF’s, something that I don’t fully understand myself. Was it already getting too complicated?

I sent the link anyway and tried to resist sending any more. They’ll either be interested or they won’t, and if the easy and straightforward style of Monevator doesn’t grab them, what will?

I mulled other options though. What if I offered to host a “Canteen Coffee House Investor” morning one day before the nine to five day starts? These guys were in by eight fifteen anyway, maybe they’d be interested in chatting informally about investments, or shares, or pensions once a month? I know I would, and maybe one or two others in the office would too? Mind you, what if they became enthused, and sank their life savings into a US Tracker just as the market uncovers another Lehman Brothers? Would they hold me responsible for ruining their financial lives? Would they remember my warnings, between slurps of coffee, that the value of investments can go up as well as down? Or that they need to work on a five year horizon?

Apart from that paranoia, however, I like the idea. I sometimes feel that it’s a lonely life being British and interested in this sort of financial stuff. It’s not really who we are, is it? We’ll conveniently ignore the reality of The City and tell ourselves that money is a private matter and that discussing it openly is really rather vulgar. It’s so much easier to pretend we’ve no interest in it because our lives are so much more bright and vibrant while we’re just “getting by” and being happy with that, instead of being some sort of dull bread-head counting every penny and comparing the size to your pile to everyone else’s.

Sometimes I scan the UK and US forums for meet-ups of like minded British people, but they seem few and far between. I did attend one of Huw’s (Financially Free by Forty) organised FIRE Escapes, but only because it was right in my home town. It was really enjoyable too, but would I travel miles to attend one? Stay overnight somewhere? “No” has been the answer to that so far. Perhaps this is because although I’m interested in financial matters, I don’t think I’m THAT interested. Yes, I could meet up with a bunch of people for a few drinks maybe once a month, but in between I’d rather get on with my passive, non-financial life. As for flying to Ecuador for a Chautauqua, I’m sorry, that verges toward cultish, Jonestown Massacre, behaviour. Which is probably a very British way of looking at it too, but there you go.

I don’t see myself as an organiser, starting a Club or forming a Society, but I have to admit I am tempted with regards to investing basics. Why? Because it’s important, and because it changed my life for the better. I think people should know about it and that they would benefit from it too. Perhaps that’s why I continue with this “Early Retirement” blog even after I went back to work. At least I had the choice to do so, and it was Financial Independence that afforded that choice – and continues to offer it. Surely that’s information that’s worth spreading?

21 thoughts on “Spread the Word

  1. Nothing in my past or education has taught me about investment so I would really welcome some realistic unbiased advice. What about an online investment course or club?

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    • I think I agree that if I knew absolutely nothing about investing, starting out is still an intimidating experience. One minute you’re reading about simple compound interest and three pages, or posts, later you’re reading about tax harvesting, bed and breakfasting and off-shore accounts (to pick a few random phrases that I still don’t understand). Perhaps it’s because people interested in investment quite like getting into the complexity? I just think that if someone had told me at school, “Don’t sink all your savings into the building society, invest some of it into stocks and shares”, and showed me how to simply do so, my financial life would have been transformed. As it happened, I was out of school about fifteen years before I realised that I could quite simply (and relatively safely in the long term) invest in the stock market. That fifteen years of building society saving would be making a massive difference now.

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  2. I had to try seriously hard to stifle a laugh at work at “cultish, Jonestown Massacre, behaviour.” I’m glad you said it. I really don’t see the appeal of Warren Buffet’s Berkshire Hathaway “Woodstock for capitalists” (ugh) meeting either. That stuff always bothers me. I’m reading blogs and thinking about this stuff incessantly already. Should I be using up my time off and weekends doing more of it?

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  3. I’m pretty new and tentative to investing and so far has be in the relative safety of passive funds. I also get what these colleagues of yours are saying, it’s gratifying to think that by overpaying by something manageable you can reduce your mortgage term by a decade. Yes I understand the 2% vs 7% interest arguement, so my question is, if you can afford it is it best to do a bit of both in case those funds don’t perform at the 7%ish mark or is overpaying whilst rates are so low just plain daft?

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  4. @Katy

    Over-paying your mortgage is not plain daft at all. There’s more to “investing” than maximising your (expected, not guaranteed) financial returns.

    Psychology comes into it, and – to my mind – owning your own home outright is a really solid goal, even if your net worth might (only might) be higher if you went the full stocks and share route.

    Personally I used all my spare cash in my youth to pay off my mortgage early. I had a flexible mortgage and every month my statement showed me how much interest I’d saved by overpaying. When I finally cleared my mortgage (after 8 years) it was, IIRC, £50k saved. There was no risk and no worry – important when you’re young and don’t have much to lose, and the “amount of interest saved” went up on every statement which was hugely comforting.

    Looking back I’d have made a lot more money by putting all my spare cash in the stock market instead of the mortgage. But I didn’t know that then. Yes, interest rates are low today, but stock markets are high. Will you get 7% a year over the next 25 years? I doubt it, but what do I know?

    My advice – not that I’m allowed to give advice! – would be to do what makes you most comfortable. If you’re keeping an eye on expenses and are looking to the future financially then you’re in a good place. To my mind overpaying your mortgage is risk free and very sensible. When you get a bit more capital under your belt you may feel comfortable going into more risky shares – your passive trackers are the way to go in my opinion. (Bear in mind all us investors are riding very high after a long bull market, record highs across the world and – for UK-centric investors – a huge Brexit boost. Hindsight is great, but on balance I don’t think the next 10 years will return what the last 10 did. But if each month you buy an extra slice of your home you’ll feel great…especially on that day when your mortgage statement has a zero balance.)

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    • Thanks for this response, just the reassurance I was needing to hear. I think you’re right when you say that psychology plays a part and I’d not really considered it in those terms. When Natwest tells you you’re saving however much it is over the life of your mortgage for what feels like a very manageable amount it’s hard not to be lured into paying something. Thankfully I’m still youngish and hopefully having tuned into overpaying, investing and generally not frittering will serve us well in the longer term!

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  5. Totally agree with everything Richard just said. I put most of our spare cash when I was young, and certainly any windfalls, into reducing the mortgage. Result? Mortgage free by 45 and no intention of borrowing any money ever again. Possibly I’d have had higher total wealth if I’d invested instead, but it comes down to your mindset – I value security, I’ll always need a home and I’d prefer it belonged to me rather than leasing it from the bank. The more debt repayments you have, the more dependent you are on maintaining your income and hence the less power you have to choose how you spend your time.

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    • You’re right, it’s a balance. I paid off my mortgage at 43. I then had quite a bit of spare cash, but I was already investing enough (and had had my fingers burnt) in stocks and shares. I definitely didn’t want a second home, a buy to let, nor a holiday property abroad. So what to do with the cash? In the end, we bought a bigger house and ended up with another mortgage, although I seriously lucked in to choosing a tracker mortgage back in 2008. 😉

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    • Mortgage free by 45, good work! I’m looking at just over fifty at the mo and it’s still a fair way off but as I said, I’m trying to find a balance with some investing as well. Probably not the most exciting of plans, but better than nothing.
      I think the key is avoiding all other forms of non essential debt. Car repayments, luxuries on tick etc, no thanks. It’s amazing how easily you can cut expenses when you tune into where the wastage lies.
      The other dilemma is having done a fairly mega house renovation (conversion of a cheaply purchased schoolhouse into residential dwelling), do you sit back and enjoy the fruits of your labours with a moderate mortgage or cash in, down size a bit and become mortgage free..?! Tricky.

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      • Argh, 43 even better. You’re all an inspiration!
        Perfect timing on the tracker mortgage! I’ve got friends who did the opposite, locked in for ten years on a fixed 7% in 2007, makes me feel queasy just thinking about it

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      • A 7% mortgage – younger people will find that hard to believe, but I remember living through Black Friday when I think mine went up to 12% for a time. And my sister in those days sold her house for a twenty grand loss (which would be more like a fifty grand hit today). Even I find myself thinking “Yes, but that’ll never happen again”, when obviously it, or something like it, almost definitely will.

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  6. Thanks for thinking of us with your colleagues — and for what it’s worth I agree with you. It’s really hard to write simply, and I invariably make @TA’s writing more complicated by adding caveats and prevarication in the name of accuracy. Meanwhile our site scores ‘masters degree’ level or similar on those language analysis tests, which is hardly ideal from a reach a mass market perspective.

    If I might sneak a link in here, I’ve been trying to build up a library of easier articles with Investing Lessons series. I wonder if it’s already gone too deep though:

    http://monevator.com/tag/investing-lessons/

    Thanks again, and I think you should definitely keep blogging FWIW. You’ve a unique and slightly contrary style that’s a great addition to the discussion!

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    • Many thanks @Investor, I really appreciate your comments (and the weekend links to my site that always bumps my traffic!) When I think about my own personal journey into investing, the phrase “When the student is ready, the teacher will appear”, springs to mind. I was ready, mentally, to put my brain in gear and learn about this stuff, but it was an intimidating arena. I still don’t have the knowledge to impart on my blog either, so generally just try to write about my own personal experience of what I did, what worked and what didn’t.

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  7. I have sympathy for your mortgage overpayers. Starting one’s investing career at a time when the US market valuations are very high (the US is nearly 50% of world indexes) might make for a tough first few years if/when the music stops. Sure, if the total time horizon in 20 years+, great. And certainly from an early retirement perspective, paying one’s mortgage off early is about the dumbest thing you can do, as I found out the hard way, and it was exceptionally dumb starting in 2009. Now – not so much. Perhaps your guys like the security of a defined result, and let’s face it, not everybody in your place of work turned out to have a taste for the early retirement lark 😉

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  8. Why not just float the idea past your colleagues, don’t have to make it a regular thing, just a casual comment along the lines of, ‘I’ve been investing for a while now, if you want to know some more I’m happy to chat. How about before work?’

    @Katy, I overpay by currently around 50% on my mortgage, like SHMD I lucked out and got a tracker mortgage in 2007. It’s the psychology bit for me; my father went bankrupt when I was a teenager and lost the house, so for me, paying the mortgage has been a priority. i think we all have to work out what we are happy doing, whilst being as informed as we can.

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  9. on the death-cult chatawackas, note there is now one in blighty with your mate vicki robins in attendance – you could have 1-on-1 with her whatever the hell that means!

    http://ukchautauqua.weebly.com/

    all for only £2200, talk about FI all week in a luxury stratford-upon-avon hotel

    Shakespeare would undoubtedly have appreciated the rich irony of such an event?

    I, unfortuntately, will be otherwise engaged that week..

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