For those who have a mortgage but also want to invest, market conditions are proving a quandary.

For starters, mortgage interest rates continue to rise with no end in sight (not until February 2023 based on current economic trends). At the same time, investment markets have generally been on a downward trend – this includes shares, property and even fixed interest investments.

What should someone with a mortgage and existing investments do in this situation? Unfortunately, there is no hard and fast answer. The best course of action will depend on the individual’s financial resources as well as which financial stage of life they are at.

Life stages

People with a mortgage and investments will typically fall under one of three financial stages of life: the homeowner; the wealth builder; and the retirement planner.

For younger people and families, generally the financial goal is either all about building a deposit or paying the mortgage. Those with children will also have the costs involved with raising them. They also tend to lead very busy lives. These people are usually in the homeowner stage of life.

For those who have their mortgage under control, with perhaps less than 50% owing compared to the current value of the property, it may be time to think about adding to an investment portfolio. This can take many forms, and it is up to the individual to be comfortable with the investment strategy. At this stage, it’s usually not worthwhile adding to superannuation even though it can be tax effective, as the money is essentially locked away until retirement. Individuals in this situation are in the wealth builder stage of life.

Finally, those approaching retirement may be inclined to maximise their super contributions. For such pre-retirees, accessing the nest egg won’t be a major issue if retirement is within sight, say within the next few years. They are in the retirement planner stage of life.

Building wealth

First, it is important to know how much “spare” cash is likely to remain in the bank account each month. Budgeting can be a difficult process, but most people can get a handle on their total expenditure by analysing their recent credit card statements.

They should then consider their regular monthly mortgage repayments and other non-credit card outgoings to determine an amount that is “spare” each month after all expenses are deducted from their monthly income. They should also think about what expenses could be reduced to increase the “spare” component.

There are three basic places to put any extra money remaining in the account at the end of each month:

• Paying down the mortgage (or adding to the offset account);
• Adding to existing investments; or
• Contributing more into super.

Stick to a plan

Regardless of your financial stage of life, it’s generally best to stick to the initial plan even through volatile investment markets. Even though interest rates are rising, it is from an extremely low base and buying into deflated investment markets can be a great strategy for long-term wealth accumulation.

Unfortunately, it is the wealth building stage of life that is most often overlooked. It is easy to focus on paying down the mortgage and meeting other essential costs. Once that is under control, it is also easy to allow lifestyle upgrades to creep in and use up all that available cash. Before people realise, their wealth building stage has passed without having any wealth built.

A robust investment plan at the wealth building stage can make things much easier later. By the time retirement looms, a frantic increase in super contributions may not be enough to sustain an individual’s lifestyle once they are retired. It may even force a later retirement than planned.