Borrow, Invest or Both?

I often find myself in heated debates over this one concept.

Should you invest when you have a mortgage?

For KiwiSaver, the answer is yes for two reasons:

?1. The employer matches your contributions, so, your return on the money you invest, is approximately 100%.?For example, you put in 3% before tax, then the employer adds 3% after tax.?

2. The government contribution. For the first $1042.86 you invest into KiwiSaver, the government will put in half ($521.43).?

That’s a no brainer, unless the contributions put you in such a bad financial position, that you’re better off not investing for now.

?Where I diverge from many other advisors, is that I strongly believe there is no better investment than an investment in your mortgage.

?Hear me out.

?Over the last 20 odd years fixed rates have averaged approximately 6.6% and floating rates 7%. The expected long-term, after tax and fee return, for a growth fund is approximately 6%. There are also instances like the 80s where interest rates spiked to upwards of 20%, or even in the last decade, the floating rate shot up to approximately 11%.

Source:?https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-mortgage-rates

So, purely from a mathematical standpoint it doesn’t add up. The counter to that might be that growth funds could outpace your mortgage, because interest rates of late, have been really low.?

?This very well could be right, but you’re rolling the dice, using the past to project the future.?Despite their best intentions, I have yet to see a fortune teller enter the world of finance and be consistently correct.

Though there are no shortage of those who think they can.

?Outside of the mathematical comparison, there is something even more important; the concept of flexibility.?Which is a core part of our investment philosophy at OnePlan For Retirement. Your future is uncertain therefore your financial plan, and investment, needs to have the flexibility to adapt to a change in circumstance.?

In the instance of a mortgage, you are leveraging on the expectation, that all factors will remain the same for the course of your life.

?This would be wonderful, as well as boring. Unfortunately, we all know this is not the case.

?People pass away, have health issues, lose their income, or something happens completely out of their control. Take May 2019 to May 2020, 21,000 New Zealanders made financial hardship withdrawals from their KiwiSaver.

Now imagine struggling and going to the bank in the hope that they will have the empathy to keep your mortgage, as well as your home, despite your inability to pay. I don’t know about you, but, I don’t want to bet my financial future on the forgiveness of a large institutional group that barely knows your situation.

?I don’t mind being wrong in this perception, but what I do mind, is when the clients I advise, lose their savings to an over-optimistic point of view.

• Linkedin:?A blueprint for chasing your dreams online?.
• Tik Tok:?A big mistake most people generally make.
• Tik Tok:??Don't do this with your property

Ep 237: Is the Reserve Bank Illuminati Greg Moyle?

Quick Fire Finance Question of the Day:

?"Hey guys,

Love the content you've been producing. Haven't heard any discussion about Central banks yet but that's probably a dry topic for most. However, considering they're the biggest player in markets right now and subject to a lot of controversy, it'd be really interesting to get your take on them and what their impacts are for society.?

Some questions i had were:?

-Is it debatable that they exacerbate wealth inequality by pushing up asset prices considering only a small proportion of the population owns financial assets??

-Who owns central banks? Japan and Switzerland's are both publicly traded, but are there hidden benefactors behind the other central banks in the world??

-Are central banks supervised by any entity or do they rely on public trust to operate? This last point is probably more applicable to the US Fed considering the recent revelations of trading by their members.?

Bit of a contentious topic I'm sure but that's what makes a good debate and an entertaining podcast!?

Thanks for producing quality content anyway and the positive impact you're having in the world.?

Cheers!

Sam"

?Ep 238: Is Rental Property Trash In This Market Greg Moyle?

Quick Fire Finance Question of the Day:

"We are fortunate to have paid off our mortgage and have no debt. We have switched the full amount of mortgage payments into an investment fund. I’m wondering if it might be smarter to instead borrow to buy a rental property, and hopefully earn capital gains on.

The investment fund only earns returns on what we put in, but an investment property might earn capital gains on the full amount.

If the rent could cover most of the mortgage interest, and we kept paying off the mortgage at the same rate we are now, we might be able to pay off an $800,000 house in around 15 years, by which time it may be worth far more. While I’m certainly enjoying being debt-free, I’m wondering if getting back into debt for this type of investment might be the way to go.

On the other hand, I worry that the housing market is overinflated and could face a big correction."

Source:?https://maryholm.com/nz-herald-18-december-2021/

Ep 239: The Only Yellow in a World Full of Blue By Ryan J Melton

So, over the holidays I wrote a book, a children's book which started out being a children's book, but then sort of turned into a morbid teenager's book, and I don't even know why I wrote it in the end.

But there's a message in there, and I think it's applicable during these times of uncertainty and our tendency to project as humans.

So, I thought I'd share it with you. It's a draft. Let me know what you think.

The Only Yellow, in a World Full of Blue By Ryan J Melton.