Lifetime ISA Suggestions

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:

  1. You contributed £20k cash
  2. Gov gave you £5k
  3. 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.

There are other investments (not stocks) that provide a higher return than cash even during a downturn in markets.

Nothing is guaranteed, it’s always a risk. Cash is safe for when you need it. For an extra <1%, will you risk having less than you contributed? Not worth it.

Everyone has a different risk appetite and that’s fine. But the facts are that you get greater returns from investing to cash rates. There are other fixed income investments that will provide a higher rate of return than the <1% you are quoting. Diversification is key.

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No, the whole point I’m making is that these greater returns are only likely when averaged out over the long term.

Yes, everyone has a different risk appetite and I’ve no doubt that people who (think) they know what they’re doing choose to take high risk short term investments. Day traders are an extreme example of this.

But as general investment advice to unknown people who likely know nothing about investments, you ought not suggest S&S investments for short term goals.

I must have missed that bit off the OP.

Yes, so without knowing what OP’s goals were, and without specifying any caveats yourself, you gave a general suggestion which could be harmful in the general case. Please don’t do that.

You have made assumptions and given your opinions on why someone shouldn’t invest. Your opinions are no better than any other on here so you might want to think about that in future posts. Your tone is starting to get a bit poisonous because I’m not agreeing with you.

But we can agree to disagree on investing v cash LISAs and end it there before it gets anymore heated :slight_smile:

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Sorry to continue to bring this up, but this isn’t a matter of differing opinions. I am attempting to correct some potentially dangerous factual misunderstandings/errors in your posts.

If this was an unimportant difference of opinion on best sport team, I would drop the issue, or wouldn’t have raised it in the first place.

There is a reason that every KID says something like:

The Fund is more appropriate for long term investments.

Or give a suggested investment time frame which is almost always longer than 5 years.

This is not my personal opinion. This is what the fund mangers of the investment products you are buying are telling you in order to protect you from making serious financial mistakes.

As I’ve said before there are short term investments that are lower risk than stocks. That isn’t a factual misunderstanding or an error.

We disagree and that’s perfectly acceptable.

Back to the original question

There are a number of options both cash and Investment and as always do your own research before making any decisions :slight_smile:

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Certainly there are. But out of interest, can you give a specific example of something someone could have invested in within an S&S LISA with lower risk than stocks, but greater return than cash interest, in the past 5 years?

Certainly:

https://www.fundslibrary.co.uk/FundsLibrary.DataRetrieval/Documents.aspx/?type=packet_fund_class_doc_factsheet_private&id=bf0fdfdc-b3c7-409b-b30d-2cc50f632d2f&user=w4YVgd31hNMon2pWq3uuN3ENZWALBP88%2B%2FlTAW%2BEt20Mm9bn%2BETrguAdLZoCwfOc&r=1

Lower risk than Equities with a cumulative 5 year growth of 22%. That was the first one I found and there will be plenty more but if i spend anymore time doing that I will be charging a fee :wink:

Anyway back to my day job :grinning:

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The risk profile of that corporate bond fund is based on past performance volatility. The risk category matches that of LS20 (which is a mix of corporate stocks and bonds as well as gov bonds).

In both cases, while the volatility is relatively low compared to stocks, there is still some volatility. And it is looking at the 5 year cumulative growth, or the average per year, that is misleading for short term investments.

For example, if you had invested in this Fidelity product for only 2 or 3 years within the last 5 years (reinvesting dividends), there are a number of windows where you’d make a loss, or less than cash savings.

And there are plenty of times during that period when you would have made a decent return too over a very short period. That is the beauty (and risk) of investing.

No risk = little return, Greater risk = greater reward.

I’m not sure what response you are looking for but, in the voice of John Bercow “I’m hoping we have provided a sufficient amount of time to this discussion to feel satisfied that we have both made an argument for and against investing in the short term and we can leave it there. Ordeeeeer”

There is actually no charge for buying AJ Bell’s own-branded funds (which themselves are just invested in Vanguard/Blackrock etc funds so a great loophole to achieve low cost drip-feeding).

There is an 0.35% annual management charge on their own-branded ones then I think you need to pay a £1.50 dealing charge on a sale (if I recall correctly) so it’s stIll super cheap to build and maintain.

They have a suite of 4 or 5 of their own-branded funds with different risk appetites, ranging from virtually cash to entirely risky equities, which is cool that they give you the choice.

I don’t want to flare up the recent heated debate on here about cash LISAs vs sas LISAs, but I am personally loving that AJ bell recently launched their Global Growth Fund which has absolutely filthy levels of risk. My LISA is 100% invested in that, but as a disclaimer I would say that suits me and you should stick to cash if you need to exit soon or have any concerns about losing money.

My partner and I have a medium term outlook (4-6 years) and want to grow to £50k. So without any growth that is 5 years of £4k each plus government bonuses. If a risky fund accelerates that to 4 years then great, if it slows it down to 6 years then that is ok. It’s all about your own circumstances and your own attitude to risk so you can’t say one way is right and another is wrong.

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D’Oh! Sorry, I didn’t read your message correctly.

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I’d be interested to know what other people’s circumstances and strategies are?

I know of more than one couple who got some help from parents or relatives and use the following simple strategy. They will filter £8k into their two LISAs in march, £8k into it in April (new tax year and allowances) and therefore instantly have a £20k deposit at a cost of £16k.

There are some rules about needing to have funded it for 6 months before buying a property, but you could get around that by just putting in £1 the October before, or wait another 5 months to complete on a property, or you could just wait until the next April to bank another £2k bonus and have converted £24k of mum and dad’s money into a £30k deposit within only 13 months (eg. March 2020, April 2020, April 2021)

I wonder if there are any other smart strategies out there?

I didnt explore their own funds. Will have a look. Thanks

Well not really because I’ve gained thousands of pounds investing in stocks / funds in the last couple of years whereas she’s only got the government bonus but I get your point that the market could have crashed during that period.