I would think it will depend on how much interest you are saving by paying it and how long you have left on your mortgage.it is unknown territory atm and after this who knows what's going to happen. The government could increase isa interest rates and amounts you can have just to get some dough through the door. Maybe just pay a little extra each month for now as even that can help. 5-10 years is a long way off and it's pretty guaranteed your drum will have increased by then even coming back from any drop this bug may cause.

Hi John, my apologies, I wasn’t aware that you were already invested.

Crystal balls are cheating and would make it far too easy, I’m afraid.

With stock market investing you can never be sure about the climate as you don’t know what will happen tomorrow. There could a coronavirus cure announced this week for all know. That’s why you need to take a long-term view. If you are genuinely worried about investing new money, your mortgage interest rate of 1.8% is higher than the interest on your cash of 1.16%, so it would make sense to pay it off.

I’m of the opinion that cash is never king, unless its for short term savings or for day to day liquidity. Others will have a different view to this.

Judging by the fact you’re maxing out your ISA, I’m assuming you are at least a higher rate tax payer.

If you do still want to invest further, there are other options available….

1. Invest via a General Investment Account, separate to your ISA. You are still entitled to the £2,000 dividend allowance (assuming you don’t already receive dividends from elsewhere), i.e. your first £2,000 of dividends are tax free. Each individual has a £12,300 CGT allowance, so if your profit on sale is below this, its tax free. Any profit over £12,300 is taxed at 20% for a HR taxpayer. This can be managed by selling your investments once per tax year when they get close to £12,300 profit.

2. If you’re married, use your wife’s £20,000 ISA allowance.

The next two are more exotic and not for the faint hearted, but possibly attractive for those paying higher taxes:

3. Enterprise Investment Scheme (EIS) – These are tax relief schemes created by government to encourage investment into start-up businesses. Like a fund, it’s managed by a professional across a portfolio of business. Charges are higher, as is the risk. Potential for big gains and big losses. New investments qualify for 30% income tax relief, e.g. if, you made a £10,000 investment, you would qualify a 30% (£3,000) income tax rebate. However, the investment must be held for 3 years or this is withdrawn. Additionally, if held for 3 years, any gains made on sale are exempt from CGT. Less of a bonus for someone younger, but after 2 years, assets are outside of your estate for IHT purposes on death.

4. Venture Capital Trusts (VCT). Similar to the EIS concept of investing in small businesses, via a professional manager with generous tax benefits. Still get 30% income tax reduction on new investment, although this is withdrawn if investment is not held for at least 5 years. Sales are CGT exempt with no minimum holding period.

Protecting your loved ones

Insuring yourself against ill health or death isn’t at the forefront of everyone’s mind. Yet we don’t think twice when it comes to holiday, home contents or even pet insurance.

With death all around us, this sad time may be the perfect opportunity to consider what would happen if we died.

Think of yourself as a robot which brings home £3,000 per month. If your family were reliant on a cash machine in your lounge which spat out £3,000 per month, would you insure that?

The most common forms of personal protection are:

Life Assurance:

• Pays out a tax free, predefined cash lump sum on death, if it occurs during the term of the policy.
• Can be set up on a ‘decreasing’ basis, meaning the lump sum pay-out will reduce each year. This could be useful if the purposes of the protection is to pay off a capital and repayment mortgage.
• Alternatively, it could be set up on a ‘level’ basis which remains the same throughout the term.

Income Protection Insurance:

• A long-term policy that pays a tax-free regular income when the insured becomes unable to work because of a long-term illness or incapacity.
• The benefit will typically pay out 60% of the insured’s gross salary for the remainder of the term. This is to encourage the insured to return to work in future.

Critical Illness Cover:

• Pays a predefined tax-free lump sum to the insured upon diagnosis of a condition from a pre-determined list.
• The scope of cover varies between providers. All policies cover cancer, heart attack and stroke, others often include conditions such as kidney failure, Alzheimer’s and multiple sclerosis.

When thinking about protection, it’s not a case of choosing which one of the above suits you best. You want to cover yourself for every eventuality and each of the above can in fact be complimentary.

So, what are the most common barriers?

1. “If I’m sick, I’ll keep working”: People underestimate the severity of many illnesses and how long they could last. Whilst working, 1/8 are diagnosed with a critical illness and 1/7 will be signed off work for 6+ months due to illness. The average income protection claim is 5 years and 19 weeks.

2. “I already have cover from my employer”. Whilst true, these are not always as attractive as they may seem on the surface. My colleague’s client was part of his employer’s protection scheme and had life cover of 4x his salary on death and 6 weeks sick pay. Sounds attractive, right? He was diagnosed with prostate cancer and signed off work. After 6 weeks, his sick pay ended, and he found himself on statutory sick pay of £95.85 per week. To compound things, his company found themselves in financial difficulty several months later and he was made redundant. This meant that he had lost his company protection and that he was too ill to qualify for a new policy. He died at the end of last year, leaving his wife and two young children with a £180,000 mortgage debt.

People move jobs, get ill, are made redundant. Are you putting all your family eggs in your employer’s basket? Is your current protection actually sufficient?

3. “I can’t afford it” Have you ever researched rates? Certainly, whilst you are young and in good health, premiums are considerably lower. With income protection, by tweaking something like the deferral period (the period between your first day off work and your income benefits commencing) can make a big difference, as illustrated here:

Based on a healthy 35-year-old, earning £45,000 per annum (provides 60% of gross income of £2,250 for 2 years):
- 8-week deferral period: £16.80 per month premium
- 26-week deferral period: £11.33 per month premium

That’s about the price of a Holmesdale boiled burger with a warm Carlsberg out of a plastic bottle. What’s the price of peace of mind?

4. “Someone will look after me” For some, they will. Those with the bank of mum and dad can maybe go a few months. How long would your parents be willing/able to keep paying your mortgage?

Could the State help? Personal Independence Payments are non means tested and will pay a maximum of £151 per week. You might also qualify for Universal Credit (if you have less than £16,000 in savings) which will bring in an additional £594 per month for a joint claim.

Ask yourself, how would my family cope financially if I became seriously ill or died last night? Not at the forefront of your mind? Perhaps it should be.

Thanks these posts are useful I hope the HOL community appreciate it.

One more point

Estate planning / avoiding death duties would be interesting.

One more point

That would be a good one. I'll aim to have that ready for Monday.

I see tax limits and brackets are changing next year. What's the difference GM.

When it comes t these decisions, no one knows what will happen so I think it’s fair enough for GM to give his view.

It’s a question of risk appetite. If you’re happier to invest in the stock market it’s higher risk, with higher potential returns or even a negative as you mention.

Low risk = pay down the mortgage. Not sexy but it will give you a completely predictable ‘return’.

Then it’s up to the person to decide.

Vive le Roy!

I get that the choice is with the individual - for the short term (5 years) the default position for an Adviser is usually to recommend clearIng down debt rather than invest.

Not a pop at GM as I enjoy his commentary...

Morning Eden. I’m pleased you enjoy my articles. You do raise a valid point here.

I do need to clarify that I have purposely avoided the word ‘advice’ and have opted for ‘guidance’ instead. I don’t mean to be pedantic, but the moment I give advice, as a regulated IFA, I become liable. To give advice there is a rigorous process whereby I would fully understand the clients financial position, circumstances and objectives before making a formal recommendation.

You are correct that an Advisers default position would be to clear debt first. However, things such as the individual risk appetite, capacity for loss and feelings towards debt would influence a recommendation. My personal feelings, as an experienced stock market investor, are that we are in a unique time where interest rates are at an all-time low which brings opportunity. Over a period of 5-10 years, I would be confident (others may not) of investment returns which would outperform the low interest rate debt. Of course, this is not guaranteed. I accept my suggestion is a little outside the box, it’s a new angle for people to consider.

For a risk averse individual who is uncomfortable with investing and debt, they would be steered towards clearing the mortgage debt first.

I don’t know what will happen over the next 5-10 years, but we can use history to help predict trends. The Barclays Equity Gilt Study 2016 found that equities have a 75% chance of outperforming cash over a consecutive 5-year period and a 91% chance over a 10-year period. I take on board that there could be a market crash at the time he needs the money, but looking at a basic ‘moderate’ risk passive fund (Vanguard LifeStrategy 60%), it is still +36.8% over 5 years despite Covid. At the bottom of the trough (23rd March 20), it was still +19.36%.

Everyone will have a different take on this.