Debt vs investment

By THIS IS MONEY
Updated:

 

Should I cash in an endowment to pay off all my debts or should I invest the money in the stock market to make more money, as I have in the past? TW, Halifax.

Ian Millward at independent financial advisers Chase de Vere says: First ask yourself if it is a wise move to cash in your endowment at all. If it is in the first few years, probably not, as most of the charges are usually collected in this period so the amount you get back will inevitably be reduced by that. The way to tell is to ask the company what the fund value is, ie, how much your investment is worth if left in place, and what the encashment value is. This will reveal how much you will get if you cash it in now - showing how big a bite charges will take out of your fund. If you are set to suffer heavy penalties you may well be better off leaving the endowment to run.

But if you do cash it in, is it a wise this to use the money to invest in the stock market bearing in mind you want to pay off debts? Look at how much debt you have and the rate of interest you are paying on it (probably between 12% and 20% at present) and compare that with the level of return you could get on the money if you put it in the stock market - especially bearing in mind that returns on direct stock market investments are completely unguaranteed. You'd be lucky to get 12%-20% returns on direct stock market investments on a regular basis. At worst you could end up with lousy returns on your stock market investments and still be saddled with your debts.

If you decide to cash in your endowment you would probably be better of using it to pay off the debts than fund forays into the stock market in the hope you'll make a killing.

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