Cash HTB ISA to which S&S LISA?

jd87

I have a cash HTB ISA with Halifax with just over £4000 in it and I want to start putting money into an investment LISA instead. I can currently afford to contribute about £200 per month. I'm not sure which LISA to go for or how to go about it.

If the annual limit to add to a LISA is £4000 per year, should I just take £4000 out of my HTB ISA as a lump sum now and open a LISA with it? Then continue putting my £200 per month into my HTB ISA? Then when we get to April I'll have about £1000 or so in my HTB ISA which I can put as another lump sum into my LISA (and then close the HTB ISA). Will that work? Is there any downside to doing it that way?

I notice some S&S LISAs allow you to formally "transfer" a HTB ISA in. What's the benefit to doing that instead?

Finally I don't know much about investing but don't mind a bit of risk. MoneyBox's £1 per month fee seems a bit high, Nutmeg seems like they have good marketing which always make me suspicious. Should I go with H&L perhaps?

masonic

You could use either route to transfer the money. If you use the formal transfer process this will preserve what's left of your £20,000 annual ISA allowance, whereas money you self-transfer will be deducted from that allowance. Either way, it will use up your £4,000 annual LISA allowance. Self-transfer is easier if you won't use that last £4k of your ISA allowance.

Presumably you are intending to use the LISA for retirement or at least don't want to use the money to buy a home in the next 10 years or so. If using for retirement, you should consider whether you'd be better off putting the money into a pension instead.

I hold my LISA with AJ Bell. The charges are lower than H-L, but H-L might be better for an inexperienced investor. I'm not a fan of MoneyBox or Nutmeg. With the first two, you will need to choose investments.

jd87

masonic wrote: »

Presumably you are intending to use the LISA for retirement or at least don't want to use the money to buy a home in the next 10 years or so.

Why do you say this? I am actually intending to use it to buy in about 2-3 years.

I know investment is meant to be longer term than that, but my HTB ISA is earning so little interest, where surely getting the bonus upfront in a LISA and then being able to invest the bonus means i'll be better off. I'll choose fairly low risk investments.

masonic

jd87 wrote: »

Why do you say this? I am actually intending to use it to buy in about 2-3 years.

I know investment is meant to be longer term than that, but my HTB ISA is earning so little interest, where surely getting the bonus upfront in a LISA and then being able to invest the bonus means i'll be better off. I'll choose fairly low risk investments.

Even "fairly low risk" investments should normally be held for a minimum of 5 years. The bonus shouldn't come into it as you can get that even if you opt for a cash LISA.

Low risk would mean a high proportion of bonds, the price of which have been significantly inflated by low interest rates and quantitative easing. That means they already pay a low level of interest (less than a savings account) and with the risk of a capital loss if interest rates go up. That would need to be offset with at least some (say 20-40% higher risk investments) to get to a position that would outperform cash on average.

You would be risking a loss potential of up to 20-30% vs. an average return of 2-3%, with perhaps a 1 in 3 chance of losing money overall in a 2-3 year period.

That said, if you were ok with delaying your house purchase in the event of being unlucky with your investments, then you could wait a few more years and you'd be very likely to catch up to the position you'd have been in if you'd stayed in cash.

Alexland

masonic wrote: »

I hold my LISA with AJ Bell. The charges are lower than H-L, but H-L might be better for an inexperienced investor.

That's not is a fair comparison - they can both be cheaper than the other depending on the situation.

If someone is doing low value regular fund trades then HL will beat AJ Bell in the early years as the £1.50 AJ Bell trade fees will be more expensive than the HL extra 0.2% platform fee.

Also if someone is investing in HL discounted funds then the overall cost (regardless of LISA value and trade pattern) can be lower than holding a different class of the same fund on AJ Bell. For example the LTGE fund OCF is 0.2% lower on HL so the total % platform+fund charges are the same but with AJ Bell you still have to pay £1.50 per trade.

Alex

Alexland

jd87 wrote: »

Why do you say this? I am actually intending to use it to buy in about 2-3 years.

I know investment is meant to be longer term than that, but my HTB ISA is earning so little interest, where surely getting the bonus upfront in a LISA and then being able to invest the bonus means i'll be better off. I'll choose fairly low risk investments.

3 years is not a suitable investment timeline as you have a good chance of ending with a loss (on both the HTB transfer value and LISA bonus). Each day the timeline will get shorter and the chance will increase. You really need to be able to invest for at least 5 preferably 7-10 years to have much certainty of a positive outcome.

If you value your money stick to cash otherwise its a complete gamble and could set you back on your journey.

Alex

masonic

Alexland wrote: »

That's not is a fair comparison - they can both be cheaper than the other depending on the situation.

If someone is doing low value regular fund trades then HL will beat AJ Bell in the early years as the £1.50 AJ Bell trade fees will be more expensive than the HL extra 0.2% platform fee.

Also if someone is investing in HL discounted funds then the overall cost (regardless of LISA value and trade pattern) can be lower than holding a different class of the same fund on AJ Bell. For example the LTGE fund OCF is 0.2% lower on HL so the total % platform+fund charges are the same but with AJ Bell you still have to pay £1.50 per trade.

Alex

That's true, what I wrote was based on the assumption that the OP would be investing for the long term and ultimately build up a fairly large holding. I also made the unstated assumption that the OP would go for something like Vanguard Lifestrategy, being inexperienced. We need to consider that transfers are a somewhat sticky issue with LISAs and it may not be possible to freely move between platforms when the balance is tipped wrt portfolio size and charges.

In both cases, however, the cheapest way to hold a larger portfolio is using ETFs and/or Investment Trusts, in order to benefit from the cap on platform charges. In this case AJ Bell is also cheaper than H-L.

In my case, I currently hold a single strategic bond OEIC in my LISA which I used as I built up the value of the LISA, but in April (when I make my next £4k subscription) I will sell this and buy a single S&P500 ETF (selling the same in my S&S ISA) and move my bond holding into the S&S ISA.

Alexland

I haven't quite decided how to invest our LISAs in later years. My forecast is that if we are allowed to continue contributing until 50 they will grow to at least £100k (me) and £150k (my younger wife) each by 60 in today's money (obviously more with inflation).

We are avoiding AJ Bell as we already have other substantial investments with them so while the HL fees are capped on ITs/ETFs the LTGE fund performance may continue to be excellent for the foreseeable...

Alex