Ultimately, the decision of whether to invest in shares or pay down your mortgage will boil down to a few considerations – your personal goals, interest rates, investment returns, taxes, your age and risk tolerance.
Your mortgage
The main reason people choose to throw more money at their mortgage is two-fold. First, making additional mortgage repayments can save you thousands of dollars in interest. And second, it can help you repay your loan faster.
There’s also financial security associated with paying down your mortgage, especially during volatile times. Paying off your mortgage faster means you’ll have full equity in your property which provides peace of mind and eliminates the regular expense of those pesky mortgage repayments. Finally, investing more in your property means you have greater flexibility in borrowing against your equity to diversify your portfolio.
Of course, there are disadvantages. By focusing on your mortgage, your wealth is concentrated in one asset which can leave you vulnerable to a downturn in the market. Also, while generally we anticipate that a property will appreciate in value over time, there is a chance that the property value will decrease, meaning the amount of equity you have will depreciate too. Finally, focusing on your mortgage may mean losing out on the potential high investment returns from shares.
Investing in shares
It can be a good strategy to diversify your wealth across property and shares, however there are risks involved in investing in shares.
Advantages of investing in shares include the potential investment return which may be higher than what you’d save by paying off your mortgage. Also, investing in shares may mean your money is more accessible than if you put that same amount of money into your property.
However, investments in the share market are exposed to market fluctuations meaning you absolutely need to take a long-term approach. Also, the unpredictability of the share market means any investments can be deemed risky. Finally, shares are subject to income tax and when you sell the assets, capital gains tax may apply.
Other considerations
Deciding whether to invest in shares or pay down your mortgage will also be dependent on what lifestyle stage you’re at and how tolerant your portfolio is to risk.
Deciding how to utilise your money to its fullest potential is a personal decision and it largely depends on your lifestyle and financial goals. If you need assistance, it’s best to speak to the experts. Give us a call today and we’ll guide you through the decision-making process.
