There are several factors beyond your control that will determine the allocation of your investments or provide you an indication if time is ripe for large borrowings, home loan refinancing or even home purchase. Few important factors are discussed below:
Interest Rates
Interest rates for Mortgages and Loans are usually pegged to the Bank Rate or Prime Lending Rate. These fluctuate based on various factors like inflation, money supply, economic growth (or decline). I will not cover the reasons why Interest rates fluctuate but how we need to tailor our decisions to make most out of such fluctuations.
Interest rate reduction may in most cases trigger a rally in stock markets. So, this leads to a great investment opportunity and a great borrowing opportunity. We can decide to refinance our Home Mortgage at this time or get a Home Equity Line of Credit (HELOC) if that was in our bucket list. These actions will help us rebalance our debt and we would in most cases end up paying less over a period.
On the other hand, if we time our investments correctly, there is a scope of higher appreciation of our money. This in most cases would be speculative and I would rather stick to investing regular (monthly or weekly) amounts rather than trying to time the market. If someone claims that they have timed the market, do not believe them.
I have seen a few individuals taking debt and using the proceeds to finance investments. To me this is a strict NO. I would not take debt to fund investments. It is the best way to get into a debt trap if the investments do not perform. An upside will be good, but a downside will spell disaster.
I would suggest we restructure debt when interest rates fall. The various options that you can choose from for a traditional mortgage will be elaborated in the section Key Financial Considerations.
Taxation
You have done all the right things and have arrived at a great balance between your income and expenses and savings/ investments and when you withdraw part or all of your investments, you do not get the returns. This may be attributed to tax outgo on the gain from investments. We do not realize how much of our money goes towards Taxes and the impact they have on our savings potential. We pay income tax, capital gains tax, property tax, city/ county tax when we make purchases from a store, services tax, to name a few. These are all visible taxes. The invisible ones include taxes paid by seller of goods for procuring the raw materials and baked it in their price. Any of these taxes can change and would impact us passively by reducing our ability to save.
Inflation
This is a thief that silently steals our savings through a steady price creep. Inflation, put simply, is the increase in cost of item over period. Inflation is not necessarily a bad omen when it comes to economy as increase in prices may be due to an increase in per-capita income[i]. It is thus natural corollary from here that the purchasing power of $1 reduces over time. This simply put is the time value of money concept that you may have come across. This topic warrants a separate and dedicated treatment.
Job/ Profession
So far, we have discussed external factors beyond our control that would impact your investments either positively or negatively. There are a few specific factors that will impact your investment decisions that are much closer or specific to you. A key change may occur when your primary source of income changes.
You may get an increment or a promotion and this will increase your salary (income). On the other hand, you may lose your job or will have to switch jobs and settle for a lower salary. All these changes in income would warrant relooking at your investment portfolio to make necessary corrections to adopt to the new reality. Professionals and small business owners go through similar cycles of earnings.
When income increases, we tend to increase our discretionary spending. Exactly reverse but a bit modest effect is observed when our income reduces. It is time to withdraw and tap Short-Term and Medium-Term Investments if your income source reduces substantially or is completely cut off.
It is a good idea to increase Medium-Term investments when your income levels increase.
Inheritance
This is a white goose that may come your way, but you do not know when. This usually gets triggered on death of a person that has designated you as a beneficiary. Their financial legacy either gets allocated to all their heirs or beneficiaries through a Will[ii] or in absence of a Will, it will get distributed evenly among all surviving heirs. You can consider money received through this route as bonus but cannot do financial planning on its basis. Depending on what comes your way, you can augment that portfolio to yours. For example, few of you may inherit a property. It gets added to your Long-Term portfolio (investment home) if you decide not to sell it. If you sell it, you can invest monies and build any other portfolio (Medium-Term, Special Purpose Investments or Protection) or you may choose to spend part of the inheritance.
[i] total income generated by the population divided by the population
[ii] a legal document that spells out your wishes regarding distribution of your assets after your death
