My wife and I have already paid off a pretty big chunk of our mortgage (more than we needed to) and will continue to pay more off through amortization (by design) of part of the outstanding mortgage.
Given the recent vote on elimination of interest rate deductions we’re keen to continue to pay down even more over time although right now it doesn’t make sense (the only part we can pay down extra now is a SARON piece but that has such ultralow interest rate that it doesn’t make sense).
Furthermore, with the stock market returns so great and the risk of a recession, I’m starting to feel itchy and inclined to sell some of our holdings and set it aside for a substantial paydown of our mortgage in the next year or 2-3 (not right now, as SAROn rates are so low). This would de-risk us vs. a market crash but at the same time holding it in cash is not good (inflation) nor is putting it in bonds (low interest rates) - thus am left wondering, how to de-risk (sell equity) to build a reserve for a future mortgage payment but doing this without not having the amount being eaten up by inflation. What’s a safe spot to put a few 100k of cash for 2-3 years and at least get some return while being flexible enough to transfer it as a mortgage payment if/when interest rates go up (or, transfer it back to the equity market if a crash does happen and I can go bottom fishing)? Any good ideas?
The concept of borrowing at 0.5-1.5% and investing for 5%+ p.a. is not touched by the vote so it’s still cheaper to not pay down the mortgage and invest instead of amortizing.
This whole strategy looks really short-sighted to me. Either you invest for the long-term or you pay down the mortgage aggressively. No-one knows when the next recession hits.
Missed returns might be hard for some to understand but that is exactly what you are exposing yourself to, by waiting for the right moment. It’s not recommended to time the market, even if the stockpickers on this forum may disagree.
Realistically for 2-3 years your only somewhat safe bets are MMF or medium-term notes if you can lock it up for 1/2/3 years.
2nd pillar buybacks if you have the cap space?
It will be minimum 3 years in that case, and you might have troubles with the tax office. (Although I guess you could use the removal of the inputed rental income as reason?)
I’m no specialist but throwing it down out there: it sounds like you want to take off market risk now in order to get cash later (you don’t want the cash now). It sounds to me that it is a job options are designed for (hedging against a market crash by giving up upside, allowing you to sell later and get the cash you want to amortize the mortgage).
Otherwise, I’d buy a/some 2-3 years medium term notes. Cembra has them at 0.5%-0.55%, there might be better deals out there. Even if inflation averages 1% on that timeframe, your money should roughly hold its value (over a 2 years timeframe, you’d loose roughly 1k real total for each 100k, which doesn’t functionally change the benefits of the situation for you.
Edit: as an aside, your fixed rate mortgage is a nominal liability, not a real one. Inflation devalues its value so if inflation is big, you’ll gain more by it on the total value of your mortgage than you’d loose on the purchasing power of the cash held aside. In this scenario, you should root for high inflation (and cash on bank accounts would be a wholly suitable proposition).
I get it, but this is very much about minimizing risk / regret. The recent returns have been very strong, I believe (rightly or wrongly, the future will tell) there’ll be a pullback, and reducing the mortgage (or at least: ensuring the capability to do so) gives peace of mind. Not everything can be captured in an excel spreadsheet (thankfully!)
Completely forgot about that option (and have used 2nd pillar payments extensively in the past). An interesting one to explore and low risk with clearly defined benefits. Will need to do some homework to see when/how my wife and I could then pull funds out to pay the mortgage (these could also be funds paid in during prior years). I imagine this may be an optimization ‘trick’ used more often (pay into 2nd pillar, get the tax benefit, then use 2nd pillar at a later point to pay down the mortgage).
Be aware that if you take money out of 2nd pillar, back filling will not be tax privileged. 3rd pillar doesn’t have this limitation but you are limited in how much you can put into it every year
You design a baseline at which sell order is triggered. Every 10 basic points market increase above the baseline, you move up the baseline by 5 points and so on. Worst can happen, it gets triggered and you may have made 5 - 10 or more basic points above your capital. Better than 0.5%
Still not capturing fully upside if market goes sideways and also currency risks as I assume you (as most of us) are exposed to >50% to USD.
I am considering this for a LETF that returned me 300% over the last 2-3 years
To expand on what Phil said, what I read is that there’s a risk of low liquidity in case of a flash crash (like April this year) meaning the stop loss will fall through the floor and only manage to find liquidity and get executed at a potentially much lower price than you wanted, and that this is especially dangerous with LETFs.
That is true. But if he sets a baseline and he is happy with that level, then he should happy that there was a stop loss as he isn’t aiming at maximizing returns. Isn’t it?
Good point. I haven’t thought it about. I guess this is relevant for some LEFTs or very small one or very illiquid stocks. If it’s a large underlying ETF it shouldn’t be a problem. Even less so for him if he invests in traditional S&P500 ETFs
My point was off topic to the thread, however the idea that a stop loss is a potentially very bad thing is a common topic in the TQQQ subreddit, hardly a small LETF
It doesn’t even require low liquidity. If the value is 100 and you set your stop loss at 95. If there is a sudden shift in pricing and the value falls to 50, but then recovers to 80, the stop loss will trigger and stocks get sold at 50.
My point is that the stop loss doesn’t guarantee the baseline.
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