Novice investment fund

Eco_Miser

tony863 wrote: »

Is the LISA a better option than the funds? Is there an example calculator available that estimates a return? I might be getting it wrong but I'm assuming a LISA is no risk whatsoever and therefore the return is not nearly as good as it could be with Nutmeg or VLS?

A LISA could be in cash, and therefore virtually no risk, but it could also be in funds, and exactly the same risk as an ordinary ISA (but you've got 25% bonus from the government, and it's almost locked in until you're 60).

tony863

Eco_Miser wrote: »

A LISA could be in cash, and therefore virtually no risk, but it could also be in funds, and exactly the same risk as an ordinary ISA (but you've got 25% bonus from the government, and it's almost locked in until you're 60).

Thanks for this. Would there be one that you'd recommend for my needs?

Alexland

Hi,

A cash LISA would be a terrible way to save for 20+ years as the low interest rate would not keep up with inflation and the government bonus would be erroded.

Nutmeg do a stocks and shares Lifetime ISA and it works exactly the same as their ISA (auto investing in ETF funds) except you can only contribute up to £4000 per tax year and the government will add a 25% bonus (so up to £1000 per year). You can put the money in this tax year and the bonus will be paid early next tax year. From next tax year the bonus will be paid within about a month of contributing. Nutmeg will automatically invest the contribution and bonus. You can keep contributing each tax year until your 50th birthday and then leave invested for another 10 years before you get access to the money from your 60th birthday.

We each have a Nutmeg LISA and although it's very early days (they only launched this tax year) we are currently up over £100 each but that's mainly due to the weak pound rather than investment returns. A few weeks ago we were down nearly £50 each. I am going to use mine at 60 to help my son with a house deposit and to continue feeding my pension while retired.

Note - technically you can withdraw a proportion earlier than your 60th if required but you loose the government bonus and pay a small penalty so it's best to consider the money locked away. That also stops you making the classic behavioural mistake of withdrawing the money when market valuations are low. If the value drops its best to just have confidence it is diversified and remember the shares should at least follow inflation and your dividend reinvestment is getting better value so leave it alone to recover and grow.

Alex

tony863

Alexland wrote: »

Hi,

A cash LISA would be a terrible way to save for 20+ years as the low interest rate would not keep up with inflation and the government bonus would be erroded.

Nutmeg do a stocks and shares Lifetime ISA and it works exactly the same as their ISA (auto investing in ETF funds) except you can only contribute up to £4000 per tax year and the government will add a 25% bonus (so up to £1000 per year). You can put the money in this tax year and the bonus will be paid early next tax year. From next tax year the bonus will be paid within about a month of contributing. Nutmeg will automatically invest the contribution and bonus. You can keep contributing each tax year until your 50th birthday and then leave invested for another 10 years before you get access to the money from your 60th birthday.

We each have a Nutmeg LISA and although it's very early days (they only launched this tax year) we are currently up over £100 each but that's mainly due to the weak pound rather than investment returns. A few weeks ago we were down nearly £50 each. I am going to use mine at 60 to help my son with a house deposit and to continue feeding my pension while retired.

Note - technically you can withdraw a proportion earlier than your 60th if required but you loose the government bonus and pay a small penalty so it's best to consider the money locked away. That also stops you making the classic behavioural mistake of withdrawing the money when market valuations are low. If the value drops its best to just have confidence it is diversified and remember the shares should at least follow inflation and your dividend reinvestment is getting better value so leave it alone to recover and grow.

Alex

Thanks for this again Alex,

So is the Nutmeg LISA the same as doing the VLS60 or the Nutmeg share fund? Like I said before, I'm looking at doing £4k in with £200 pm into one account..... Or £2k into 2 accounts and £100 pm into each.

I like the idea of the Nutmeg LISA but wonder whether I should put it all into one or split it down?

dunstonh

So is the Nutmeg LISA the same as doing the VLS60

No. VLS60 is an investment fund. you choose the fund. Nutmeg is a portfolio of ETFs that you have no control over.

Alexland

Nutmeg's fixed allocation 60% shares ETF portfolio should perform about the same as the VLS60 fund. They won't quite match as there are differences in the asset allocation and rebalancing but is unclear which would perform better and the fund fees are similar.

If you are inclined to withdraw some before 60 it might be best to put half in a Vanguard ISA and half (up to £4k per tax year) in a Nutmeg LISA. This would also help ensure you stay near the FSCS compensation limit which presumably will eventually rise with some inflation.

According to the Nutmeg calculator if you are 38 and put £2k a year into a LISA (and get a 25% bonus) until 50 you will have contributed £24k so gained a £6k government bonus so a total of £30k invested. At 5% compound investment return this would mean the account could be worth £61,747 (or £39,940 after deducting inflation) at 60 which sounds reasonable.

If you kept your Vanguard ISA until 60 it would be worth about 14% less because of the lack of LISA bonus (-20%) but the overall Vanguard fees are 0.25% lower (+6%).

Alex.

hels234

Hi, If you have a public sector pension is an AVC available? I'm local gov't and pay into an AVC which is taken before tax from my salary and then I choose a number of funds to invest it into (its with prudential). I also have a LISA for when I turn 60 and also an ISA (S&S) just in case I need the money back out before 60.

tony863

Alexland wrote: »

Nutmeg's fixed allocation 60% shares ETF portfolio should perform about the same as the VLS60 fund. They won't quite match as there are differences in the asset allocation and rebalancing but is unclear which would perform better and the fund fees are similar.

If you are inclined to withdraw some before 60 it might be best to put half in a Vanguard ISA and half (up to £4k per tax year) in a Nutmeg LISA. This would also help ensure you stay near the FSCS compensation limit which presumably will eventually rise with some inflation.

According to the Nutmeg calculator if you are 38 and put £2k a year into a LISA (and get a 25% bonus) until 50 you will have contributed £24k so gained a £6k government bonus so a total of £30k invested. At 5% compound investment return this would mean the account could be worth £61,747 (or £39,940 after deducting inflation) at 60 which sounds reasonable.

If you kept your Vanguard ISA until 60 it would be worth about 13% less because of the lack of LISA bonus (-20%) but the Vanguard platform fees are 0.30% lower (+7%).

Alex.

I think I'm more confused now :rotfl:

Can I ask which you think is the better option? Or which you would choose?

1. £2k VLS 60plus £100pm
2. £2k nutmeg plus £100pm
3. £4k one of the above plus £200 pm

tony863

hels234 wrote: »

Hi, If you have a public sector pension is an AVC available? I'm local gov't and pay into an AVC which is taken before tax from my salary and then I choose a number of funds to invest it into (its with prudential). I also have a LISA for when I turn 60 and also an ISA (S&S) just in case I need the money back out before 60.

Not that I know of I'm afraid.

Alexland

In your situation where you might want access to a proportion of the money before 60 then I would stick that money in an ISA and the rest (up to £4k per tax year) in a LISA.