Hindsight is always great, but you can’t predict the next crash.
Yes, if you’re using a LISA for retirement, that’s fine. If you will need the money on short notice (your perfect house just came on the market and your offer was accepted), it’s a risk not worth taking.
Taking your example of LS20, and assuming you contribute the max each year for 5 years, you end up with £28,527:
- You contributed £20k cash
- Gov gave you £5k
- LS20 gains gave you £3,527
Ok, you might think to yourself, who wouldn’t want £3.5k extra? But that extra £3.5k is only if you get lucky and the stock market doesn’t crash when you need the money.
What if the stock market was down 50% when you wanted to make an offer on the house?
Now you only have about £17k, less than you contributed. Maybe you can’t afford your deposit now.
Compare this with a 20 year investment, where you contribute £99,980, and end up with £105,8770 in the event of a 50% crash at the end of the final year. It ruins your gains, but a) you don’t make a loss, and b) if it’s for retirement, your use case likely does not involve having to sell it all in one go, so you don’t have to crystallise the poor performance and can potentially wait for the market to recover.