Special repayments or investing in the market? Alternatives?

We are facing a similar situation, our financial situation is also significantly more relaxed than initially assumed.

We take a small part of the additional surplus for special repayments to ease our conscience and to know that we will be finished with the financing a few months (prospectively years) earlier.

The rest we save (in addition to our previous savings contracts and investments) in ETFs. When I add up all our interest, dividends, price increases, etc., they are already higher today than the interest payments for the financing. The next step is for this value to be higher than the annuity =)

We have an interest rate lock of 1.45% for 30 years – so why should I make large special repayments? In the end, the loan practically pays itself off through inflation over the next few years, and at the same time, the remaining assets increase.

What does that mean? From when is it worthwhile?

He saves in a distributing world ETF until the annual distributions (dividends) fill the saver’s allowance in order to always fully utilize it. After that, he invests in the automatically reinvesting variant, where the dividends are directly converted into additional (fractional) shares of the ETF fund.

The question of equity ETF or special repayment depends on your personal risk appetite. Financially speaking, it is an interest rate spread business, in which many professionals like hedge funds or large banks have already miscalculated. Basically, capitalism ensures that companies experience a value increase of about 4 to 6% in the long term. The 8% of the last ten years is historically a special case – there is indeed discussion about to what extent companies are "expensive / high" valued and to what extent low interest rates play a role. Rising interest rates can also mean lower stock prices because "safer" investments become relatively more attractive and at the same time the debt leverage for companies becomes more expensive, so the return on equity decreases.

If you had needed the money in the MSCI World ETF in 2003 or early 2009, you would have had a problem. If you become unemployed or unable to work, you are also better off with the special repayment.

Therefore, despite all temptations, I would invest at least 50% in the special repayment.

Sorry for quoting myself, but I forgot something important: the steadily falling "risk-free" interest rate over the last ten years has also caused the professionals (banks and funds) to continuously lower the discount rate for the cash flows coming from companies and thus continuously increase the company value mathematically. With a steady interest rate increase, stock values tend to fall for that reason alone. Of course, you can buy ETFs instead of making special repayments, you just have to be aware that this is anything but risk-free. Incidentally, one basis of financial economics is that returns arise precisely from taking risks.

Oh, but now be honest Kati: THAT what you are writing there you want to carry through all of it and sleep well when the ETF crashes into the abyss?? I don’t want to offend you but I don’t see you as the type for it.

I have also considered investing a manageable amount in ETFs. Specifically, monthly as a savings plan. If I take an accumulating ETF and then actually sell shares at some point – will the tax then be due? And will it hit hard because I make the profit all at once? What exactly is the profit in this case? I have tried to inform myself about the topic... but I haven’t read anything about that. Otherwise... I only have a small surplus and actually want to save for two purchases that are planned for the medium term and are not scheduled for an exact date. I can put the amount now into a daily allowance account. But it feels strange to me to have assets on the one hand and debts on the other. I would want to pay down debt. That’s why I want to basically "hide" the money, that is, not have it in an account with immediate access, and if it yields more return, all the better. I still have an old home savings contract with 3% interest. If things look bad when one of the purchases is due, I could also access that and leave the ETF alone. I still find it dangerous to say "the stock market has always gone up and it will always be that way." My brother once was supposed to program algorithms to predict prices... I found that dubious. But let’s see... In any case, I would not invest everything or even predominantly in ETFs. Unless it was not foreseeable at all that I would ever need the money. But that is my definition of play money.

We are facing a similar situation, our financial situation is also significantly more relaxed than initially assumed.

We use a small part of the additional surplus for special repayments to ease our conscience and to know that we will be done with the financing a few months (prospectively years) earlier.

The rest we save (in addition to our existing savings contracts and investments) in ETFs. If I add up all our interest, dividends, price increases, etc., they are already higher today than the interest payments for the financing. The next step is for this value to be higher than the annuity =)

We have an interest lock of 1.45% for 30 years – so why should I make large special repayments? The loan will basically pay itself off over the next few years through inflation while the remaining assets grow at the same time.

It’s the same with us: 1.6% fixed for 30 years and 30 years term. The loan installment is lower than comparable rent. Special repayment option is available but not used. Actually, we had planned €5,000 special repayment per year, but it’s not worthwhile at this interest rate level. The money flows into ETFs and individual stocks. The stocks have a dividend yield of 7.6% and ETFs also grow in the long term. Either the loan runs for 30 years and inflation supports us additionally. Or, with a corresponding portfolio value, it will eventually be paid off early. However, only the savings amount of the possible cumulative special repayment would be used for the payoff.

Special repayments simply don’t pay off at interest rates below inflation.