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Switching to LISA for sons house saving

Investment discussion for beginners. Why you should invest your money, get help getting started
Souljim
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Switching to LISA for sons house saving

#393253

Postby Souljim » March 7th, 2021, 9:18 am

Right LISA for my son to save for his first house

Hi All, my first post and venture onto this thread. I’ve done some groundwork but am new to this and would welcome some thoughts/guidance. We originally took out a Help to buy ISA for my son who’s 18 with the Nationwide but recognise the growth will be limited and have heard that getting the 25% from the government can sometimes take a while and you don’t earn interest in this during the life of the ISA so want to switch to a LISA.
We are looking Foresters Financial at the moment as they hold our daughters CTF and their LISA looks pretty good. After doing some digging their management fee looks high compared to others and I’ve heard that managed funds rarely beat the market and ideally we need to be looking at something that’s index tracked which I can see is linked to inflation.
I’m happy to switch to a stocks and shares LISA and wanted to know what the best one’s where which I guess you’d class as low to moderate risk (say 40% shares and the remainder in more low risk investments, gilts etc).
I’ve listed a few here (there may be better ones now and would be great to get some more expert thoughts).

Vanguard Global All Cap
Life Strategy 100
40/60 Vanguard Life Strategy
BlackRock Consensus 60

Ideally something that we can pay into monthly and get online access would be great.

Thanks folks
James

tjh290633
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Re: Switching to LISA for sons house saving

#393277

Postby tjh290633 » March 7th, 2021, 10:37 am

Souljim wrote: I’ve heard that managed funds rarely beat the market and ideally we need to be looking at something that’s index tracked which I can see is linked to inflation.

Those are two unconnected wishes. Index linkers are linked to an index, but are not linked to inflation. The index may beat inflation over time, but equally may not. If you take the FTSE100, for example, It is currently lower than the peak that it reached on 31st December 1999, 6,930,2. It has been both lower and higher since, but linked to inflation it has not. The FTSE250 has done better than the FTSE100 but has also had its ups and downs.

More recently it reached a high of 7,877.45 on 22 May 2018 and is now some 16% lower. Markets go up and down. If you are investing regularly over a long period of time, and compounding the income, you will do better, and should beat inflation.

My own portfolio, for example, calculated as an accumulation unit fund, had a unit value of £6.85 on 31 Dec 1999 and is currently at £28.14, which shows how compounding helps. I have aimed at dividend paying shares held in an ISA (PEP originally) and so benefitted from tax refunds and reasonably higher dividends than the market average.

I repeat, invest regulalrly, regardless of the market movements.

TJH

AleisterCrowley
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Re: Switching to LISA for sons house saving

#393280

Postby AleisterCrowley » March 7th, 2021, 10:51 am

Souljim wrote:

...you don’t earn interest in this during the life of the ISA so want to switch to a LISA.

Interest rates have dropped but I'm pretty sure you will earn interest on a HTB ISA. I do on my Halifax one, although the rate has dropped and it's now capped at £12k- the maximum one can get the bonus on- above this the rate is tiny

AleisterCrowley
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Re: Switching to LISA for sons house saving

#393287

Postby AleisterCrowley » March 7th, 2021, 11:01 am


vagrantbrain
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Re: Switching to LISA for sons house saving

#393289

Postby vagrantbrain » March 7th, 2021, 11:08 am

You don't say when he's likely to be buying or what the level of contributions would be. If it's in the next 3 or 4 years i'd be tempted to just leave it in cash as the potential upside from investing in shares on a relativity small sum over a short time period might not actually justify the risk. If he's looking at a longer time period, maybe mid-late 20s, then maybe something more aggressive like a world tracker or one of the larger investment trusts and leave out the bonds/fixed income parts.

I've maxed out my HTB ISA and thought about investing the rest of my deposit savings into bonds, but when I ran the numbers the most optimistic returns gave me a few hundred quid above what a cash savings account would get. When I considered i'm saving £600-800 every month the risk actually wasn't worth it for the sake of a couple weeks of contributions worth in a good year.

Souljim
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Re: Switching to LISA for sons house saving

#393372

Postby Souljim » March 7th, 2021, 4:22 pm

vagrantbrain wrote:You don't say when he's likely to be buying or what the level of contributions would be. If it's in the next 3 or 4 years i'd be tempted to just leave it in cash as the potential upside from investing in shares on a relativity small sum over a short time period might not actually justify the risk. If he's looking at a longer time period, maybe mid-late 20s, then maybe something more aggressive like a world tracker or one of the larger investment trusts and leave out the bonds/fixed income parts.

I've maxed out my HTB ISA and thought about investing the rest of my deposit savings into bonds, but when I ran the numbers the most optimistic returns gave me a few hundred quid above what a cash savings account would get. When I considered i'm saving £600-800 every month the risk actually wasn't worth it for the sake of a couple weeks of contributions worth in a good year.

I’d hazard a guess at 5 years before he’d be ready to buy his first house and that seems a reasonable minimum length of time to get a decent return on a LISA. He’s only got £700 in his HTB ISA and between us we’re putting a £100 into it each month. I want him to put more away whilst he can and fingers crossed he will.
We were considering a fund that’s low to moderate risk (40 shares 60 fixed income etc) but wasn’t sure if this was the best route and which was the right fund.
Thanks for your help.

Souljim
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Re: Switching to LISA for sons house saving

#393378

Postby Souljim » March 7th, 2021, 4:36 pm

AleisterCrowley wrote:
Souljim wrote:

...you don’t earn interest in this during the life of the ISA so want to switch to a LISA.

Interest rates have dropped but I'm pretty sure you will earn interest on a HTB ISA. I do on my Halifax one, although the rate has dropped and it's now capped at £12k- the maximum one can get the bonus on- above this the rate is tiny

Hi and thanks for responding. Gross annual interest rate is only 1% with the Nationwide and you don’t get the 25% from the government until you’re actually purchasing your first house with the HTB ISA. With the LISA you very quickly get the governments 25% contribution which you can also start to earn interest on. Looking at circa 5 year and considering a SAS LISA. Just not sure which one is right for him. It would need to be relatively low/moderate risk.

Souljim
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Re: Switching to LISA for sons house saving

#393381

Postby Souljim » March 7th, 2021, 4:43 pm

tjh290633 wrote:
Souljim wrote: I’ve heard that managed funds rarely beat the market and ideally we need to be looking at something that’s index tracked which I can see is linked to inflation.

Those are two unconnected wishes. Index linkers are linked to an index, but are not linked to inflation. The index may beat inflation over time, but equally may not. If you take the FTSE100, for example, It is currently lower than the peak that it reached on 31st December 1999, 6,930,2. It has been both lower and higher since, but linked to inflation it has not. The FTSE250 has done better than the FTSE100 but has also had its ups and downs.

More recently it reached a high of 7,877.45 on 22 May 2018 and is now some 16% lower. Markets go up and down. If you are investing regularly over a long period of time, and compounding the income, you will do better, and should beat inflation.

My own portfolio, for example, calculated as an accumulation unit fund, had a unit value of £6.85 on 31 Dec 1999 and is currently at £28.14, which shows how compounding helps. I have aimed at dividend paying shares held in an ISA (PEP originally) and so benefitted from tax refunds and reasonably higher dividends than the market average.

I repeat, invest regulalrly, regardless of the market movements.

TJH
Everyday’s a school day as they say and thanks for your response. I’m pretty set on moving his money to a SAS LISA and just need to know which one. As a complete novice I may be completely wrong to do this but I’m sure someone will enlighten me :D .

TUK020
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Re: Switching to LISA for sons house saving

#393399

Postby TUK020 » March 7th, 2021, 5:33 pm

When I was setting up S&S LISAs for my kids a couple of years ago, there were very few offerings - most LISAs on the market then were Cash, and earning a paltry rate of interest.

Hargreaves Landsdown offer one. There may be others now, don't know.

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Re: Switching to LISA for sons house saving

#393624

Postby jonesa1 » March 8th, 2021, 1:25 pm

Souljim wrote:I’d hazard a guess at 5 years before he’d be ready to buy his first house and that seems a reasonable minimum length of time to get a decent return on a LISA. He’s only got £700 in his HTB ISA and between us we’re putting a £100 into it each month. I want him to put more away whilst he can and fingers crossed he will.
We were considering a fund that’s low to moderate risk (40 shares 60 fixed income etc) but wasn’t sure if this was the best route and which was the right fund.
Thanks for your help.


Over a 5 years time-frame, even supposedly lower risk investments could lose significant value as well as gain it. Given the potential for interest rates to rise, bonds could well lose value while held - possibly less than equities, but maybe more than the inflation erosion of a cash deposit. However, as you'd be investing throughout the holding period, you would get some benefit from declining asset values (you'd buy more of them each month) to offset any decline in value of the longer held assets. My inclination would be to put up to half the money each month into a global equity tracker and hold the rest as cash. Or go for 100% equities for a couple of years and then put new money into cash. Over 5 years the median holding period would only be 2.5 years.

Andrew

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Re: Switching to LISA for sons house saving

#393627

Postby JohnB » March 8th, 2021, 1:34 pm

I set up HL LISAs for my nephews a few years, they work well, but aren't the cheapest, I started them with ACC tracker funds for convenience, I must get them to switch to INC ETFs soon, as the fee regime is better as the sums grow, but they are more bother.

I'd have 100% equity for something over that timescale where growth is probably more important than security. You and your son should watch Lars Krojer's videos and buy his book Investing Demystified to decide your position on tracker vs active funds. http://www.kroijer.com/

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Re: Switching to LISA for sons house saving

#393751

Postby Souljim » March 8th, 2021, 10:33 pm

JohnB wrote:I set up HL LISAs for my nephews a few years, they work well, but aren't the cheapest, I started them with ACC tracker funds for convenience, I must get them to switch to INC ETFs soon, as the fee regime is better as the sums grow, but they are more bother.

I'd have 100% equity for something over that timescale where growth is probably more important than security. You and your son should watch Lars Krojer's videos and buy his book Investing Demystified to decide your position on tracker vs active funds.


Hi John and thanks for taking the time to respond. I’ve just watched the videos and cheap world index trackers look like they could be a good option. I’m not sure I’d want to go 100% equity though (you must be braver than me). I was already looking at a Vanguard LifeStrategy fund which I think is along the same lines (unless you tell me differently)? Their costs are pretty low too.
Last edited by tjh290633 on March 8th, 2021, 11:23 pm, edited 1 time in total.
Reason: Missing tag restored - TJH


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