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£250K in cash to invest in shares or £250k in a house ... which is the best investment as from today


Hancock
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Hancock

Looking at the above scenario from a purely investment point.

If you had £250K in cash as of this moment, to put in the stock market at a time of your choosing whether there is a BK or not .... 

 ... would this offer greater returns than having buying a £250k in a house and not having to pay any rent.

Obviously in the first scenario the investor would have to pay rent of about 600PCM.

My thinking is if inflation stays high, sooner or later interest rates will rise and it could bring the price of the property down, but you'd be saving £7k per annum on rent; however if inflation is high and wage growth matches it, its inevitable that house prices will continue to rise.

If there is a BK clearly putting £250k into the markets would be a very good investment, but a BK is not a certainty, and at the current prices the stock market looks well over valued, so putting such a sum in now could well mean its halved in the event of a correction.

Thus it could takes years to get that money returned and by then inflation would mean it'd have to get to £500k just to buy that £250k house ... however if interest rates go high enough (say 5%) then that house would stay at a similar price in nominal terms for a long time.

A dilemma. 

 

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SpectrumFX

It's all about timing.

I spent about 10 years waiting for house prices to fall to levels that weren't eye wateringly insane. I finally gave in and bought about 10 years ago.

That's 20 years I've been expecting a reversion to the mean that hasn't happened yet. The timing just didn't work for me. But are we months off a crash, or will it take another 20 years? Nobody knows for sure, so you've got to take your chances.

If I was in my early twenties I'd probably take a punt and go the  investment route. But the clock's always ticking, and eventually you've got a wife and kids, and putting up with the shitty rental conditions in this country (and the nagging from the wife) starts to get very tiresome.

 

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Green Devil
3 minutes ago, SpectrumFX said:

It's all about timing.

I spent about 10 years waiting for house prices to fall to levels that weren't eye wateringly insane. I finally gave in and bought about 10 years ago.

That's 20 years I've been expecting a reversion to the mean that hasn't happened yet. The timing just didn't work for me. But are we months off a crash, or will it take another 20 years? Nobody knows for sure, so you've got to take your chances.

If I was in my early twenties I'd probably take a punt and go the  investment route. But the clock's always ticking, and eventually you've got a wife and kids, and putting up with the shitty rental conditions in this country (and the nagging from the wife) starts to get very tiresome.

 

If you are young you are certainly better of off renting. The extra mobility (new jobs etc) is offset by the rent and the poss risk of being kicked out. But when you get to the position of the wife and two kids and the steady job waiting for retirement, then youre better off buying. Swings n roundabouts. I wouldnt be worried out the size of your cash pot for the critieria, the choice should fit your situation regarding stability of homelife.

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Bobthebuilder
7 minutes ago, SpectrumFX said:

If I was in my early twenties I'd probably take a punt and go the  investment route.

I think age has to be taken into consideration. If I was young I would buy a house for 125k, take on a 125K mortgage and invest the other. At 40ish I would just buy the house.

All I can add from a personal view is once I had bought a house I considered the money gone, and I would never get it back. That's how I had to look at it to make the decision.

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23rdian
Posted (edited)
46 minutes ago, SpectrumFX said:

It's all about timing.

I spent about 10 years waiting for house prices to fall to levels that weren't eye wateringly insane. I finally gave in and bought about 10 years ago.

That's 20 years I've been expecting a reversion to the mean that hasn't happened yet. The timing just didn't work for me. But are we months off a crash, or will it take another 20 years? Nobody knows for sure, so you've got to take your chances.

If I was in my early twenties I'd probably take a punt and go the  investment route. But the clock's always ticking, and eventually you've got a wife and kids, and putting up with the shitty rental conditions in this country (and the nagging from the wife) starts to get very tiresome.

 

I am happy to admit I got the housing thing wrong. I was looking it from the wrong perspective.

I was looking at it from historical values of houses based on wages.

After 2008 I should have realised that houses are just hard assets like others that have been pumped by basically the death of money as we know it.

It's a bit tragic though that it's an asset which is basically required for a decent family life though.

Think that's why I moved from ToS to here, theres only so many times you can bang a drum before you have to admit no-one is listening.

If it was me, I would split the money somehow. Even if it was a 200k/50k split. I think I would resent not having any play money in the event of a decent BK.

Edited by 23rdian
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Bobthebuilder
11 minutes ago, 23rdian said:

After 2008 I should have realised that houses are just hard assets like others that have been pumped by basically the death of money as we know it.

Bang there it is. I am amazed by people I know who love their house prices but just don't understand it's valued in depreciating fiat.

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23rdian
Posted (edited)
14 minutes ago, Bobthebuilder said:

Bang there it is. I am amazed by people I know who love their house prices but just don't understand it's valued in depreciating fiat.

If you asked 100 people what a central bank does let alone how the money system worked, how many do you think would be able to answer? 

I don't even mean in-depth answers. Just a basic understanding. I think it might be about 5 people if you are lucky. Literally no-one I know, even pretty intelligent people I know just shrug it off. Ignorance is bliss.

All they see is a price of a house going up and up since just before the Millennium.

About the same time globalisation really kicked off IMO.

But where do we go from here? It's not looking brilliant to me. Like rats in a sack.

 

 

 

Edited by 23rdian
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Froggy2000

My strategy would be to get a 10 year fix mortgage to lock in the low rates.  You would need a 25% deposit to get one at a reasonable rate (roughly 2.5% if you have steady employment, good credit etc).

So that would be 62.5k deposit.  The rest I would invest in reflation stocks.  Yes they have rallied off their lows, but remember this cycle is due to run for at least 10 years, so there is still some reasonable value.

A 4% yield from the portfolio would be 7k a year.  Tax free if in an ISA.  So that will manage more than half of the repayments on the mortgage and can be expected to rise over time.  The main struggle would be the first 5 years.

Obviously your payments will spike when the fix ends, but you will have hopefully received some pay rises by then, or you can sell some of your reflation portfolio depending on how the sums work out at that time.

High house prices piss me off like the rest of us on here but this way at least you can hope that a lot of the principal is paid off by inflation / those poor suckers in long term bonds, bringing the real price paid over time down considerably.

One question for me would be what happens if yields increase by for example 1% across the curve?  Will that make things better value - i.e higher interest rate on the mortgage but lower initial purchase price - or worse?  On that I have no idea.

That's what I would do anyway.  Not ideal but I think the best way we can hope to play it.  Not financial advice!!!

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Not advice. But my situation.

50% in BP.

50% in Gold. Silver miners. Fres looks cheap. CEY has plenty of upside.

Timing this year is critical. Get it right. 

 

 

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23rdian
Posted (edited)
17 minutes ago, Hunty said:

Not advice. But my situation.

50% in BP.

50% in Gold. Silver miners. Fres looks cheap. CEY has plenty of upside.

Timing this year is critical. Get it right. 

 

 

50pc in one company needs brass balls. But I have all these and will be adding to them.

Edited by 23rdian
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Hancock
2 hours ago, 23rdian said:

I am happy to admit I got the housing thing wrong. I was looking it from the wrong perspective.

Anyone over about 43 would have been acutely aware of the late 80s early 90s crash, and sadly presumed capitalism was the norm.

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Hancock
Posted (edited)
1 hour ago, Hunty said:

Not advice. But my situation.

50% in BP.

50% in Gold. Silver miners. Fres looks cheap. CEY has plenty of upside.

Timing this year is critical. Get it right. 

 

 

Yes this is the thing, but one needs a crystal ball to truly know whats going to happen in this market.

Ive got £110k in reflation shares/gold silver etc.. in my SIPP, plus 20K in cash and another 20k to come in the next 6 weeks.

Then another 80k or so in my ISA in cash, plus the rest to drop in shares if need me.

Edited by Hancock
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goldbug9999
Posted (edited)
5 hours ago, Hancock said:

Looking at the above scenario from a purely investment point.

If you had £250K in cash as of this moment, to put in the stock market at a time of your choosing whether there is a BK or not .... 

I would use 75k of it to put a deposit on a 250k house at an LTV of 70% which is the sweet spot got getting the best rates while committing the minimum capital. You then have 175k to invest in something more liquid and hopefully with a higher rate of return than mortgage loan rate.  

Edited by goldbug9999
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Lightscribe
Posted (edited)

Entirely dependent on age, situation and the area you live.

If you live up north where in some areas you can get a decent sized house in an acceptable area for under £150k then go for it. I would buy it outright or 10 year long term fixed (if they are still available and not being pulled). If you lived in the south I’d say wait for the BK and rent, as it’s too far gone.

Remember whichever way you look at it, they’ll be a lot of dead boomers in 5-10 years and a lot of excess supply of 4-5 bed houses with no one to fill them, especially if property levies replace council taxes. This scenario is completely ignoring the economic devastation of the pandemic and inflation.

House prices have risen like the FAANGs into asset bubbles and can be viewed the same as a ‘growth’ asset (pic below) which won’t keep up with inflation like ‘value’ assets.
The last time this happened was 40 years ago and lasted a decade. This will cause people to exit the market. Inflation means government props are now irrelevant.

Investment wise, as always, energy and physical PMs and miners. The last place you want is to keep cash in a bank when inflation is rampant (unless they start raising rates of course).

I see it like this. Rapidly rising inflation is already here and is going to hit joe public in the next few months. Furlough ends (eventually transitions into UBI but that’s another topic), businesses re-evaluate costs and staff working from home etc. That’s without more lockdowns (which I suspect will be coming). Post pandemic economic realisation will hit people like a brick wall. This fairy tale of sitting at home and getting paid top salaries (and people now demanding it) will be looked back on with amusement in years to come.

I know it’s a cliche, but this time it’s different, it really is. People are being led down the garden path and looking the wrong way but that is intentional.

The ‘big short’ guy Michael Burry, is betting on hyperinflation. Me and like many on here are erring on the side that central banks will attempt to save the major currencies by raising rates. Either will be devastating to the majority of people who haven’t the faintest idea of what’s coming. They want to keep it that way.

40B4525C-8A7D-4498-A242-FAA45B5B9D39.thumb.jpeg.f037542dac92c713248114280e9870fe.jpeg

Edited by Lightscribe
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Napoleon Dynamite
8 hours ago, goldbug9999 said:

I would use 75k of it to put a deposit on a 250k house at an LTV of 70% which is the sweet spot got getting the best rates while committing the minimum capital. You then have 175k to invest in something more liquid and hopefully with a higher rate of return than mortgage loan rate.  

Was going to say similar.

Put enough into a mortgage for the best interest rate and invest the rest.

Takes the risk out of it and give you more assets.

 

 

 

 

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Frank Hovis
9 hours ago, goldbug9999 said:

I would use 75k of it to put a deposit on a 250k house at an LTV of 70% which is the sweet spot got getting the best rates while committing the minimum capital. You then have 175k to invest in something more liquid and hopefully with a higher rate of return than mortgage loan rate.  

I like that but would probably put more into the house - £125k maybe or more but leaving a decent cash reserve.

My main driver on buying the property would be the huge amount of rent saved out of after tax income.  Any other investment has to go some to return that amount to your pocket after paying tax on the income.

There is also the benefit, from buying, of having now taken that big decision off the table so you no longer need to concern yourself with HPI predictions and suchlike.

 

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Hancock
1 hour ago, Lightscribe said:

Entirely dependent on age, situation and the area you live.

If you live up north where in some areas you can get a decent sized house in an acceptable area for under £150k then go for it. I would buy it outright or 10 year long term fixed (if they are still available and not being pulled). If you lived in the south I’d say wait for the BK and rent, as it’s too far gone.

Investment wise, as always, energy and physical PMs and miners. The last place you want is to keep cash in a bank when inflation is rampant (unless they start raising rates of course).

I see it like this. Rapidly rising inflation is already here and is going to hit joe public in the next few months. Furlough ends (eventually transitions into UBI but that’s another topic), businesses re-evaluate costs and staff working from home etc. That’s without more lockdowns (which I suspect will be coming). Post pandemic economic realisation will hit people like a brick wall. This fairy tale of sitting at home and getting paid top salaries (and people now demanding it) will be looked back on with amusement in years to come.

Me and like many on here are erring on the side that central banks will attempt to save the major currencies by raising rates.

 

It would be the south and aged 46 my problem is i'm up there with the best of waiting for the BK and when one did happen in March 2020 house prices went up.

As this money is sat on the sidelines, i'm of the opinion that the last place anyone wants to keep their cash in the short term is in the stock market especially as its arguably a bubble right now.

I also see it like what you say in your last 2 paragraphs, only problem is it could take a while.

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Frank Hovis
45 minutes ago, Hancock said:

It would be the south and aged 46 my problem is i'm up there with the best of waiting for the BK and when one did happen in March 2020 house prices went up.

As this money is sat on the sidelines, i'm of the opinion that the last place anyone wants to keep their cash in the short term is in the stock market especially as its arguably a bubble right now.

I also see it like what you say in your last 2 paragraphs, only problem is it could take a while.

Certainly the Dow looks bubblicious:

image.thumb.png.beac41cbc5554401009b949aec6d2181.png

 

 

But would you say the same about the FTSE100?

image.thumb.png.79fbdea11e1043aa66257ca0ad332d48.png

 

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Lightscribe
Posted (edited)
1 hour ago, Hancock said:

It would be the south and aged 46 my problem is i'm up there with the best of waiting for the BK and when one did happen in March 2020 house prices went up.

As this money is sat on the sidelines, i'm of the opinion that the last place anyone wants to keep their cash in the short term is in the stock market especially as its arguably a bubble right now.

I also see it like what you say in your last 2 paragraphs, only problem is it could take a while.

The Covid shock dip in March wasn’t even a blip, most certainly not the BK (didn’t even register on the radar of the FAANGs to much of an extent) look at Amazon chart below. The BK is still to come.

Compare the prices of commodities, lumber, oil, gas, energy, chemicals, fertiliser and metals today to where they were in previous years. Notice how they have doubled or more and yet the supply/manufacturing sector values are still at multi-year lows. They are the value stocks that will rise with inflation. Yes they may dip again in a BK but will weather against the storm of inflation as cash devalues.

House prices went up due to unicorns, rainbows, work from home and stamp duty savings.

‘I’ll tell you what, let’s move to Penzance forever where I can do my spreadsheets whilst sitting in the sun at a coastal cafe, drinking an overpriced cup of Kopi Luwak coffee that’s been shitted out by a raccoon, how fabulous!’

Bounce back loans, furlough and sitting in gardens drinking wine stopped the plebs revolting and the economic elephant in the room has been put in the cupboard, out of sight out of mind.

Reality will bite. People’s salaries haven’t changed. 1 million+ people have disappeared from London. Thousands of flats within city centres aren’t selling, there’s a five year backlog in fire safety certificates and people are stuck in negative equity.

First time buyers did not benefit from the stamp duty savings. The house price increase statistics were skewed on paper due to a flurry of £500k+ houses being bought and sold to one another to make the most of stamp duty savings.

Supply and demand is absolute horse shite. The supply has been hoovered up by older generational wealth seeking return in a low interest rate environment. That will reverse over the coming years regardless.

The whole house of cards lies solely on zero rates and the banks willingness to lend. That is what will be changing going forward. Things move slowly until they don’t, it’s when the weights are added on to the other side of the scale that things can unravel very fast.

BB4F8F6F-1210-4ADB-B382-1213D5CAA08D.thumb.jpeg.607fbaeac5fd99734720a30ebeb3d6a9.jpeg

Edited by Lightscribe
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Hancock
3 hours ago, Frank Hovis said:

Certainly the Dow looks bubblicious:

image.thumb.png.beac41cbc5554401009b949aec6d2181.png

 

 

But would you say the same about the FTSE100?

image.thumb.png.79fbdea11e1043aa66257ca0ad332d48.png

 

Id imagine if you had a chart for UK house prices versus those in America, the charts would be reversed.

But the USA does have entrepreneurialism and most the world leading companies of the last 20 years ... we have house price inflation. 

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Frank Hovis
11 minutes ago, Hancock said:

Id imagine if you had a chart for UK house prices versus those in America, the charts would be reversed.

But the USA does have entrepreneurialism and most the world leading companies of the last 20 years ... we have house price inflation. 

The FTSE 100 does though have global reach; it isn't UK plc.

I certainly agree about the high entrepreneurial dynamic in the US; most of my equities are US through simple weighting.

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JoeDavola
Posted (edited)

Well....you've basically described me.

I fucked up by not buying a house 8 years ago after the last crash. I never guessed prices would inflate again so quickly. Two housing booms inside of a decade in NI - it's ridiculous.

Now, having said that even though I've done the worst things possible when it came to investing and missed out on several chances to get rich....I'm still sitting on about 200K cash; plus about 10K in index trackers for the long term.

I rent a 1 bed flat which I love living in and I'm grateful to have had for the last decade, but which has never come up for sale. Rent is 600 a month and means no council tax, no commuting costs, no maintenance costs, no heating bill (seriously I never have to use the heating). Cheap living and all the space I need.

Until the landlord chucks me out. Which they may do some day.

As a single bloke I'm not terribly enamored with the idea of exchanging my 600 a month low stress life for a 200K house that I then have to upkeep with several rooms I don't need. But there really isn't decent affordable 'single person' housing available - i.e. one good sized living room and one good sized bedroom. So you're then competing with couples with two wages when you're looking somewhere to buy. And a big percentage of the houses on sale need 5 figure sums spent on them right away to make them any way presentable. Buying the wrong house as a single person on a not terribly high wage is a very easy way to cripple yourself financially.

However - I don't want to rent forever, and I've completely lost faith in any drop in £ in house prices.

So, with that in mind - I guess the best thing would be:

- reduce your exposure to the bloated market by not buying more house than you need - not saying buy a hovel; but there's sometimes houses that are 70-100K apart and the quality of life isn't terribly different between them

- get a 10 year cheap fix with whatever the sweet spot deposit-wise is - I think it's 40%?

- start moving the rest into S&S ISA for the tax breaks and inflation protection - if I could find a low-stress way to bump my earnings up to 50K i.e. the 40% limit and start maxxing out my S&S ISA every year that would be a nice situation to be in

 

 

Edited by JoeDavola
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23rdian
16 minutes ago, JoeDavola said:

Well....you've basically described me.

I fucked up by not buying a house 8 years ago after the last crash. I never guessed prices would inflate again so quickly. Two housing booms inside of a decade in NI - it's ridiculous.

Now, having said that even though I've done the worst things possible when it came to investing and missed out on several chances to get rich....I'm still sitting on about 200K cash; plus about 10K in index trackers for the long term.

I rent a 1 bed flat which I love living in and I'm grateful to have had for the last decade, but which has never come up for sale. Rent is 600 a month and means no council tax, no commuting costs, no maintenance costs, no heating bill (seriously I never have to use the heating). Cheap living and all the space I need.

Until the landlord chucks me out. Which they may do some day.

As a single bloke I'm not terribly enamored with the idea of exchanging my 600 a month low stress life for a 200K house that I then have to upkeep with several rooms I don't need. But there really isn't decent affordable 'single person' housing available - i.e. one good sized living room and one good sized bedroom. So you're then competing with couples with two wages when you're looking somewhere to buy. And a big percentage of the houses on sale need 5 figure sums spent on them right away to make them any way presentable. Buying the wrong house as a single person on a not terribly high wage is a very easy way to cripple yourself financially.

However - I don't want to rent forever, and I've completely lost faith in any drop in £ in house prices.

So, with that in mind - I guess the best thing would be:

- reduce your exposure to the bloated market by not buying more house than you need - not saying buy a hovel; but there's sometimes houses that are 70-100K apart and the quality of life isn't terribly different between them

- get a 10 year cheap fix with whatever the sweet spot deposit-wise is - I think it's 40%?

- start moving the rest into S&S ISA for the tax breaks and inflation protection - if I could find a low-stress way to bump my earnings up to 50K i.e. the 40% limit and start maxxing out my S&S ISA every year that would be a nice situation to be in

 

 

And me lol. Although I do have the option to buy a place cheap. I just can't commit. Crazy eh?

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JoeDavola
Just now, 23rdian said:

And me lol. Although I do have the option to buy a place cheap. I just can't commit. Crazy eh?

Why don't you want to buy a cheap gaff?

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Don Coglione
18 minutes ago, JoeDavola said:

Well....you've basically described me.

I fucked up by not buying a house 8 years ago after the last crash. I never guessed prices would inflate again so quickly. Two housing booms inside of a decade in NI - it's ridiculous.

Now, having said that even though I've done the worst things possible when it came to investing and missed out on several chances to get rich....I'm still sitting on about 200K cash; plus about 10K in index trackers for the long term.

I rent a 1 bed flat which I love living in and I'm grateful to have had for the last decade, but which has never come up for sale. Rent is 600 a month and means no council tax, no commuting costs, no maintenance costs, no heating bill (seriously I never have to use the heating). Cheap living and all the space I need.

Until the landlord chucks me out. Which they may do some day.

As a single bloke I'm not terribly enamored with the idea of exchanging my 600 a month low stress life for a 200K house that I then have to upkeep with several rooms I don't need. But there really isn't decent affordable 'single person' housing available - i.e. one good sized living room and one good sized bedroom. So you're then competing with couples with two wages when you're looking somewhere to buy. And a big percentage of the houses on sale need 5 figure sums spent on them right away to make them any way presentable. Buying the wrong house as a single person on a not terribly high wage is a very easy way to cripple yourself financially.

However - I don't want to rent forever, and I've completely lost faith in any drop in £ in house prices.

So, with that in mind - I guess the best thing would be:

- reduce your exposure to the bloated market by not buying more house than you need - not saying buy a hovel; but there's sometimes houses that are 70-100K apart and the quality of life isn't terribly different between them

- get a 10 year cheap fix with whatever the sweet spot deposit-wise is - I think it's 40%?

- start moving the rest into S&S ISA for the tax breaks and inflation protection - if I could find a low-stress way to bump my earnings up to 50K i.e. the 40% limit and start maxxing out my S&S ISA every year that would be a nice situation to be in

 

 

I hope, given zero interest paid on cash savings, that you have been tipping £20k each tax year out of that £200k pile into a S&S ISA, even if you choose simply to hold it in cash there. You can always take it out again if needed, but once the tax year is gone, the opportunity to build up a tax-sheltered stash goes with it.

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