LISA - S&S or CASH - Thoughts?

swiseman90

Hi,



New to posting on the forum but have been following it for a number of years so thought I'd give it a shot...

Please excuse me if this has been posted or answered elsewhere - I have had a look so many places to look...


I am looking into opening a LISA in the new week or so. I have read the guides for both LISA & HTB ISA on the MSE website.


My ultimate aim is to get the best benefit out buying a new house but I am not looking to buy for another 18+ months easily. Hence, why the LISA looks to be the better option - also for the fact that the average house price where I am is in between the £250k to £450k margin.


My question is, amongst any thoughts of your own which are greatly appreciated.


I am new to stocks & shares so appreciate the usual risk statement etc and what I do ultimately is my own decision and risk.


I have £4,000 ready to invest/save as a lump sum to make the most of the interest etc.

- As a rule of thumb - if I was to opt for a LISA S&S with someone like moneybox app with the fees below - is the return I get (albeit positive as such) likely to be more than the outgoing fees. The reason I ask is that if I put in the £4k - over the year it's a £12 subscription fee plus £216 platform fee plus a potential £12 fund provider fee so that could total around £240. Appreicate there's no definitive answer as it will fluctuate but just looking for some advice on the general rule of thumb please?


If I opt for the LISA CASH at 1.4% roughly - this would look to be circa £55 a year with no fees.

--Below is the moneybox app fees referred to above--

Monthly subscription fee.
This covers all investment accounts. E.g. If you have a Stocks & Shares ISA and a General Investment Account, you will pay £1 in total each month.

• £1.00 Free for the first 3 months

• Moneybox platform fee 0.45% Charged monthly.

• Annual fund provider costs. Incl. transactions
  0.12% - 0.30% Charged monthly

----


Greatly appreciate some thoughts and opinions please?


Thanks in advance

bowlhead99

You may misunderstand the pricing.

If you think the cost is £240 a year, that's about 6% of £4000, which would eat any investment gains you hope to make, because low to medium risk funds are not going to make more than 6% a year on average.

However, fortunately the platform fees you have described are 0.45% a *year*, which on £4000 is only £18 a year, or £1.50 a month; and if we said the fund's running costs were 0.3% a year, which on £4000 is only £12 a year or £1 a month.... you are talking about £30 a year, plus the ongoing £1 a month. So £40ish a year on £4000 which is only a percent. Of course, we're talking about a LISA so with the bonus the £4000 is £5000, but the equivalent fee is still only about a percent or £50ish.

Over the long term, one would expect to get returns from investment funds, even in only a 'medium risk' global fund, of greater than inflation plus 1%. You'd expect the net return after fees to be higher than the fixed return of 1.4% offered on cash.

Unfortunately, sounds like you're not investing for anything like the 'long term', just 'more than 18 months easy'. A whole economic cycle can be a decade or more, and during that time in the world of Investments you get up years and down years and flat years. If you invested for just 2 years, or even 5 years, it would be quite possible to only get down or flat years and on the highest risk funds offers from a mixed asset investment fund provider such as moneybox or others, that could be a 40% loss over a couple of years.

So you can see that if you use the 'investments' rather than 'cash' route, you are talking a potential loss of £1500-2000 rather than just £40-50 of fees a year The fees - though useful to look at as a point of comparison across providers - of £40-50 a year, are completely irrelevant if you make a loss of £1500-2000 on the amount you invested.

IMHO, if you are buying the property in five years, then you could maybe take a punt and invest the first year's £4000 plus bonus in a medium risk fund LISA, and put all the latter years' £4000s into a decent and safe cash LISA to ensure that investment losses don't unduly delay your purchase. Whereas if you are buying in only two to five years from now, there is no point using funds and taking investment risk because your outcome will essentially follow a random walk of the stock market.

If you are a gambler at heart and are buying in two years, you might as well just wait until you're about to buy, and then take a few thousand quid to a casino and let 'randomness' decide whether you have an extra couple of grand to buy the property or have instead lost a couple of grand and need to buy a cheaper property / save longer.

Albermarle

Over the long term, one would expect to get returns from investment funds, even in only a 'medium risk' global fund, of greater than inflation plus 1%.

I thought I was a bit cautious, but this looks a bit on the pessimistic side? Medium risk usually refers to a fund with 50 to 60% equities so hopefully this would achieve 2 to 3 % above inflation ( over the usual > 10 years outlook ) OK we have had a long good run so maybe you have taken that into account ?

bowlhead99

Albermarle wrote: »

I thought I was a bit cautious, but this looks a bit on the pessimistic side? Medium risk usually refers to a fund with 50 to 60% equities so hopefully this would achieve 2 to 3 % above inflation ( over the usual > 10 years outlook ) OK we have had a long good run so maybe you have taken that into account ?

I was not trying to be pessimistic or optimistic. The OP misunderstood the pricing structure but a part of his question was
"is the return I get (albeit positive as such) likely to be more than the outgoing fees?"

If the fees are 1%, then whether it is a good thing or a bad thing to invest in the product might rest on whether or not "over the long term, one would expect to get [gross] returns from investment funds, even in only a 'medium risk' global fund, of greater than inflation plus 1%.".

And I think that it's true, that one would expect to get such returns (more than enough to cover your fees and inflation, over the long term).

But whether they would be enough to cover that target by half a percent or by five percent is neither here nor there, because really the bigger point is that the OP had not mentioned investing for the long term, he was just saying he wouldn't use the proceeds to buy a house for 'at least 18 months'. If you are *not* investing 'for the long term' it doesn't matter that the returns from 'investing for the long term' are inflation+1% or inflation+3% or inflation+7% depending on the investment mix and the person whose opinion upon which you're relying for the estimate.

What matters is that the short term returns might be inflation -50% or -30%, depending on which investment mix you select, and if you select the lower risk investment selections you still have risk of loss, but with pretty limited upside.

Thus the rest of my post.