How do stock market crashes affect investment versus mortgage repayment strategies? 5
Which effect does a collapse of stock markets have on the options available for investment or mortgage repayment especially when such a collapse occurs a short time before retirement.
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Scenarios in which the stock market crashes are bound to determine the effectiveness of the strategy of investing in certain assets with the aim of paying off the mortgage. Such scenarios may lead to incurring losses or getting minimal gains, for instance, when there is a crash just before the time you are supposed to repay the mortgage. Other strategies are equally important; for instance, some may advocate for a longer mortgage to smooth out volatility, or for a multi-portfolio investment strategy to avert these risks.
The hypothetical analysis you did with your client in the last part is a key differentiator in your content and is the value add that financial advisers don’t often demonstrate. The numbers say one thing, but if someone hasn’t considered their human responses to a crisis, the data can obfuscate the real risk. Great content.
Great analysis always wondered about this dynamic, prepay mortgage vs investing long-term, your in depth analysis elevates the sequence of returns risk to the next level. Thank you!
Brilliant content, has to be in the top 5 investment I have seen. It gives great insight in how to interpret data. Thanks for sharing. Just goes to highlighting how timing and risk ratio can influence outcome.
It would be interesting to see an analysis where one would first prioritise investing in the global stock market for let's say the first 8 years and then switch to prioritising paying off the mortgage for the remaining 7 years. Since stock returns tend to go up over time, earlier investments yield better returns than later investments, on average.