Are you wondering if you should pay off your mortgage before investing your spare cash in the ASX? You've come to the right place.
If you're a homeowner, congratulations. You're already a proactive investor.
Many experts advise to diversify your investment portfolio as much as possible. Investing in shares may offer some protection if the residential property market reduces in value.
If you've already committed to your property investment and you're comfortable not immediately paying off your mortgage, maybe the share market is your next mountain.
What ASX investment strategies might work best for people paying down a mortgage?
It's incredibly important that you take a personal approach to investing. Your individual situation must be considered before taking action and this article only contains general advice.
With that in mind, here are 2 ASX investment strategies that could be attractive to those with a mortgage.
Rather than paying extra off of your mortgage, put that cash towards accumulating compound interest
This strategy can be a relatively safe bet for simple, low-maintenance investing. This approach works because of compounding interest rates. If you're staring at your screen blankly, check out this breakdown of investing in shares versus paying down a mortgage.
Now, obviously, compound interest only works if the market is going up more often than it's going down, and that's never guaranteed. Compounding interest takes time and consistency. Although, if you're already the holder of a mortgage, you're probably well versed in the realities of long-term financial commitments.
Investing in dividend-paying shares
If you're after a more immediate reward, perhaps dividend-paying shares could be your answer. Dividends are a portion of a company's profits that shareholders are entitled to. Most companies pay their shareholders a dividend every 6 or 12 months, but they can pay more or less regularly. In fact, they don't have to pay at all. Further, the amount that reaches your bank account from your dividend shares is likely to be unstable as it reflects a company's profits and whims.
With that in mind, some investors might find dividends could be a good way to offset a proportion of their mortgage repayments. Or maybe to earn some spending money, especially if most of your disposable income currently goes towards house repayments.
Here's what you need to know before investing in the ASX
Firstly, investing in shares is risky. Even the most stable company, with a perfect record of past performance, can see volatility in its share price for a number of reasons.
Don't let that scare you though. As today's low-interest rates and rising bond prices have made cash savings accounts and bonds less prosperous than they used to be, investing in the share market might be worth considering.
Secondly, make sure you've paid off any high-interest debt before investing in the share market. Compounding interest works the same in reverse — don't let any success you may find on the ASX be depleted by debt.
Finally, make sure you have a few months' expenses left in the bank after you put your savings into any investment. You don't want to find yourself in the position of not being able to support yourself if your income stream stalls.
