I usually write about shares. A lot.
I do it because I was fortunate enough to learn about the share market early, and to be exposed to the very impressive long-term returns that been delivered on the ASX.
I've learned that the average return is about 10% per annum, over the long term, and also that investing in shares can be a volatile, sometimes stomach-churning roller coaster ride.
One that has generated enormous wealth for investors who've stayed invested (as they should), but volatile, nonetheless.
It is a journey that — historically, at least — has taken you relentlessly higher, but with some big valleys between each higher peak. Volatility is the price, unfortunately, of investing.
A price worth paying, to be sure, but an inevitable price. And one you need to make your peace with.
Investing in individual shares also comes with the occasional bad outcome. As famed — and very successful — US fund manager Peter Lynch once said, "In this business, if you're good, you're right six times out of ten. You're never going to be right nine times out of ten."
And that 6 out of 10, done well, is all you should need, again historically speaking, to make a lot of money if you have the stomach and the time horizon to put investing to work for you.
But what if you could earn tens of thousands of dollars, with no risk at all?
No, this isn't some crazy get-rich-quick scheme or pump-and-dump con.
And what if you could get one back on the banks at the same time? Surely, if that's not the Great Australian Dream, it's something close, right?
And it's painfully simple.
You might recall a report put out by the ACCC a few weeks back. It claimed (and I believe them!) that the average mortgage holder could save over $800 each year, by negotiating a better interest rate with their bank.
That might be an average, but I have an even better story. You see, armed with that report, I appeared on the Weekend Sunrise program shortly afterward. I begged their viewers to stop wasting money and to ask their financial institutions for a better rate.
In the event, one of my own family was watching the program and did just that. (Apparently, I need to do a better job of sharing my expertise at family barbecues, but at least they watch me on the telly!)
The result? The bank came to the party, with a reduction in interest rate of over 0.5%, from 4.1% to 3.59% per annum! Now, I won't keep invading their privacy by sharing the actual saving (because you could then reverse-calculate the value of their mortgage, and I want to be invited to the next family barbecue, too).
So let's run some numbers using ASIC's MoneySmart website:
The average Australian mortgage is apparently $386,000, according to the ABS. And that's the average, including the people who just took out a loan yesterday, and those who'll make their final repayment tomorrow. It turns out that the average new mortgage is around the same number, but again that includes people buying in inner Sydney and rural Victoria.
Still, it's a start. At 4.1%, that loan will cost you $1,866 per month. But at 3.59%, for example, the monthly repayment falls to $1,753. That's a saving of $113 per month, $1,356 per year, or more than $40,000 over the life of a loan. Even better, if you keep paying the original monthly amount of $1,866, you'll save almost $69,000 (and pay your loan off three years earlier).
And if you're wondering, a $600,000 mortgage – hardly unheard of in our nation's capital cities – and using the same assumptions, would result in a monthly saving of over $100,000 over the life of a 30-year loan.
Think of how many people spend hundreds of dollars a year on lotto tickets (or call up for radio competitions) to win $100,000. The chances, of course, are essentially zero for our purposes.
Or ask yourself what you'd do for a $100,000 payday.
In this case, it took my relative one phone call and one email (okay, they had to call again to chase up the request) to get that 0.51% interest rate reduction. That's free money for the sake of a few minutes on the phone, and a single email. They didn't even need to change banks.
I don't know about you, but I can't think of many other jobs that'll pay a rate of $100,000 per hour.
Yes, it's a hassle. Yes, you have to actually pick up the phone, or open your email to do it. But seriously, if a 5- or 6-figure saving isn't enough motivation, what would it take?
So here's the plan. It's that time of year, so by all means, give up smoking (please). And lose weight, go to the gym, drink less and travel more.
You and I know that you'll break them in a week or so, because they're hard to maintain.
But here's one you only need to start — and which takes zero maintenance. Yes, a New Years' resolution you can keep:
Pick up the phone, call your bank, and ask them to match the introductory rate offered by them or a competitor. Tell them you'll leave if they don't. And mean it.
Bottom line: Unless you're paying 3.7% or less, you're almost certainly being ripped off. And if you have so much money that you're happy to donate $50,000 or $100,000 to the big banks, then find a better recipient for that cash, like a charity. And if you can't find one you like, send me the money!
For the rest of us, well, you know what to do. Make 2019 the year you get one back on the banks (and get out of debt sooner). That's a New Year's Resolution you can keep.
Fool on!
Scott Phillips
Chief Investment Officer
Motley Fool Australia
P.S. If you're lucky enough to not have a mortgage, congratulations. But I bet you have a friend or relative (or both) who need to know this. It's the time of year for giving: why not forward this to them?
