Debt has been something of a theme here at Morningstar this week. We’ve looked at whether you should accept the higher credit card limit your bank offers out of the blue, how best to pay down your debt, and spoke to one reader who is prioritising her investment pot over her mortgage.
The clue in personal finance is in the name: it’s personal. That means, ultimately, there is no right or wrong answer. What’s right for me, might not be right for you – it depends on an endless array of factors such as your risk tolerance and your overall goals.
One thing we can all probably agree on is that it’s better to have less debt than more. But our reader’s decision to boost her investment pot rather than get rid of her mortgage is an interesting dilemma that will likely divide the room.
Mathematically, Cathy’s decision is the right one. At a time when interest rates are rock bottom, reducing a mortgage is probably not top priority. If you’re paying 2% interest on your home loan, but could be earning a 6% return on your investment portfolio, then choosing the stock market is the more lucrative option.
The difference, of course, is the journey. Investing in the stock market can be a bumpy ride – as we have seen this year – whereas chipping away at your mortgage comes with certainty. When we invest, no matter how much due diligence we carry out, no matter how much research we do or how diversified we are, we really don’t know how things are going to turn out. When we’re paying down debt, we do.
Personal finance is not only personal, it’s emotional. And if you’re in doubt as to what’s the right choice for you, I’d always advocate choosing the option that’s going to lead to a better night’s sleep.
The Test of Time
Eleven new funds were launched in September, according to Morningstar Direct. New fund launches is something we’ve started tracking on a monthly basis, to help you stay in the loop on the steady stream of new products available to investors.
New fund launches are often an exciting affair. New products often focus on hot spots of investment, inspiring themes and trends, or signal an established manager branching out into a new area. Frankly it never ceases to amaze me just how many new products fund houses manage to come up with.
This is, in one sense, a good thing. It means companies are paying attention to what investors want and trying to offer them something that meets that need. But you only have to look at the overall figures to know that it’s not really working.
Survivorship rates is something Morningstar does a lot of research on. How many funds stand the test of time? There were around 2,500 UK-domiciled funds at the start of 2008. In the subsequent 10 years, 1,500 of those were closed. That doesn’t leave many, right? Wrong. Over the same period, nearly 2,000 new funds were launched – leaving us with almost 3,000 funds to choose from.
When you’re looking at a new fund launch, there are a raft of things to consider: fees, the experience of the manager and team, the expertise of the parent company. But something else to think about is shelf life – is this fund a fad or does it have longevity? Because while I want a fund to deliver returns, to not overcharge me, to beat its peers – I’m a long-term investor, and I also want it to stand the test of time.
Congratulations in Order
This week has seen the announcement of Morningstar’s Fund Manager of the Year Awards. And while it might be the 14th year we’ve run these awards, it’s the first time they’ve taken place digitally. Personally, I don’t think these awards could have been better timed. In a week that’s been confusing and saddening in many ways – with more lockdowns now coming into force across the country – it’s been great to have cause to celebrate.
It’s also fantastic to hear from some of the best and brightest across this innovative, exciting industry, whether it’s our Rising Talent Kacper Brzezniak talking about the importance of standing out when you’re starting out in your career, or Clare Hart’s wonderful words of encouragement to aspiring female investors.
Congratulations to our worthy winners – it’s not been an easy year for investors, and if they can not only keep delivering for their existing clients but inspire the next generation of investors, then they’re definitely doing something right.
