Advice for daughter 25 year old

segovia

My daughter is very thrifty she has saved 18K, spread between a Natwest saver account, help to buy ISA and current account.

I think she should look into an investment ISA and put £50.00 a month into the markets. What is the best vehicle to do this, an AJ BELL account and open an ISA or similar?

J

colsten

Why do you think she should have an S&S ISA? What is the intended purpose of the S&S ISA?

Does she own property? If not, what are her plans?

What are her pension arrangements?

segovia

colsten wrote: »

Why do you think she should have an S&S ISA? What is the intended purpose of the S&S ISA?

Does she own property? If not, what are her plans?

What are her pension arrangements?

Exposure to a bit more risk to potentially increase return on investment, i.e. more than what she gets now

She plans to buy in the next 5 years

She has a workplace pension

J

steampowered

What are her savings objectives?

If she intends to use the savings as a deposit on a property in the near term, it might be that an investment ISA is not the best option for her.

segovia

steampowered wrote: »

What are her savings objectives?

If she intends to use the savings as a deposit on a property in the near term, it might be that an investment ISA is not the best option for her.

Anything that will beat inflation, at the moment all of her 18K is depreciating. The help to buy ISA is currently returning 2%

colsten

If she wants to buy in 5 years, and assuming it's a property costing less than £450k, a LISA seems the most obvious option she should consider. £4k in there now, another £4k on April 6th.

That leaves her with £10k, which is most unlikely to earn the best interest in any Natwest accounts. They can instead be spread between a Nationwide FlexDirect, for which she can get a £100 referral bonus if she plays her cards right, and which pays 5% AER for a year, then 1%, on £2,500, and a number of regular savers. E.g. a 2.5% Coventry RS will take £500 a month, and there are other regular savers about. See the Regular Savers thread for details.

An S&S ISA is a bad idea if she wants to use the money in the next 5 years.

Alice_Holt

A S & S ISA could fall in value by (say) 40% over short periods. Less than 5 years is a short period.
Look at graphs for 2000; 2008; 1987; 1992; etc.

I suggest you tell her you will make up any loses incurred, if she follows your advice. Would you be willing to do that?

steampowered

It sounds like your daughter is not in the immediate market for a house, so a balanced investment fund through a S&S ISA is a sensible choice.

Obviously there is some risk involved given that you are looking at a possible 5 year timeframe, but the probabilities are weighted in the young lady's favour.

Alice_Holt wrote: »

A S & S ISA could fall in value by (say) 40% over short periods. Less than 5 years is a short period.
Look at graphs for 2000; 2008; 1987; 1992; etc.

I suggest you tell her you will make up any loses incurred, if she follows your advice. Would you be willing to do that?

I don't agree with this type of advice. It's far too conservative. In life you have to take sensible risks.

Young people have to manage risk in every aspect of their lives. The risk of buying one's first house is much greater than the risk of putting some savings into S&S, given that houses are leveraged investments. The risk of going to university is also greater given the cost involved.

The Op's daughter is an adult and I'm sure is well able to take sensible risks.

While investing can result in a loss, it is more likely to result in a gain, with the chance increasing the longer you are invested. The statistics are that over a 5 year period one is looking at about 8% chance of making a loss, and a 92% chance of making a gain.

segovia

colsten wrote: »

If she wants to buy in 5 years, and assuming it's a property costing less than £450k, a LISA seems the most obvious option she should consider. £4k in there now, another £4k on April 6th.

That leaves her with £10k, which is most unlikely to earn the best interest in any Natwest accounts. They can instead be spread between a Nationwide FlexDirect, for which she can get a £100 referral bonus if she plays her cards right, and which pays 5% AER for a year, then 1%, on £2,500, and a number of regular savers. E.g. a 2.5% Coventry RS will take £500 a month, and there are other regular savers about. See the Regular Savers thread for details.

An S&S ISA is a bad idea if she wants to use the money in the next 5 years.

As far as I know, a LISA is locked in no flexibility. She likes to keep her options open

segovia

Alice_Holt wrote: »

A S & S ISA could fall in value by (say) 40% over short periods. Less than 5 years is a short period.
Look at graphs for 2000; 2008; 1987; 1992; etc.

I suggest you tell her you will make up any loses incurred, if she follows your advice. Would you be willing to do that?

We have £150,000.00 see aside from grandparents inheritance which she will get when she decides to buy so saving with the view to raise a deposit isn't a priority. The £150,000 is tied up in investment property which we will liquidate to give her a start.

bowlhead99

steampowered wrote: »

I don't agree with this type of advice. It's far too conservative. In life you have to take sensible risks.

Young people have to manage risk in every aspect of their lives. The risk of buying one's first house is much greater than the risk of putting some savings into S&S, given that houses are leveraged investments. The risk of going to university is also greater given the cost involved.

There is no harm done by investing £50 a month in something, as £600 a year isn't a huge amount in the context of having £18k of cash in the bank already and presumably building her savings at a much faster pace than £50 a month, given the plan to buy a house in the short to medium term.

AJ Bell as suggested by the OP wouldn't be a sensible place to do it though, because their transaction charge is £1.50 per monthly purchase so she would be throwing away 3% of the £50 every time, hammering the returns. With that sort of low amount she would be better to pick a provider that charged purely on a percentage of assets per year basis. She could use someone like Charles Stanley Direct for a broad choice of funds. Or VanguardInvestor for a less bewildering choice of options, because they only retail their own products (though no significant cost saving over CSD while the investment amounts are low).

The Op's daughter is an adult and I'm sure is well able to take sensible risks.

Yes, but ideally with some sort of a steer from an experienced hand, as people don't always 'find their own way' when left to their own devices.

As she is currently using a HTB ISA when she could instead get a meaningfully larger total bonus towards her property purchase by using a cash Lifetime ISA (into which she could move £12000 of her cash within the next year and a half, receiving as much bonus in that short space of time as she could ever get from a HTB account), it's probably the case that she is unaware of her options.

There is more to making money than being thrifty, as Colsten's examples of (e.g.) high interest rate 'regular saver', high interest current accounts, and LISAs being better than HTB for buying houses, go to show.

segovia wrote: »

As far as I know, a LISA is locked in no flexibility. She likes to keep her options open

There is a penalty if you take money out of the LISA before the age of 60 without using it to buy a first time property. But the penalty is only equal to the bonus they gave you and a few percent on top. The money is not locked away, you can have it if you really need it - just with a penalty charge.

The reward for 'locking it away' in this fashion is an instant 25% return, plus the interest rate on her money and on the bonus money. Which is astronomically better than the returns on her current and savings accounts at Nat West.

While investing can result in a loss, it is more likely to result in a gain, with the chance increasing the longer you are invested. The statistics are that over a 5 year period one is looking at about 8% chance of making a loss, and a 92% chance of making a gain.

As mentioned, £50 a month is not going to leave her destitute whether it makes money or not over the 5 years.

Still, I would recommend considering the marketing copy from investment firms alongside a dose of healthy scepticism. They are designed to build your trust that you are onto a winner when you decide to give them more money. While the statistics are probably true for the particular multi-decade data period chosen, the 92% chance of making a gain in five years no doubt reduces if you were to define a gain as being a return greater than the return on the top consumer cash accounts; and reduces further when instead of considering all possible 5-year returns from history, you filter for the ones when at the start of the 5 years, both equity and bond markets were at relatively high prices, as they are today.