Advice on S+S ISA and index tracker funds

OldManLogan

By 'save' do you mean you are using a Cash LISA for age 60+? If so that's inappropriate as the circa 1% interest rate will not keep up with changes in spending power so you are burning your bonus on inflation. Consider transferring to a S&S LISA with someone like AJ Bell Youinvest who are a viable business, accept inbound LISA transfers and offer a wide choice of investments at reasonable charges. Cash LISAs are only suitable for people who will soon be making a qualifying first time property purchase.

Thank you, for now though I don't want to use an S+S LISA, I prefer the no risk option of the cash LISA until I'm more knowledgeable with investing, I can always transfer it in future. For now it's a separate pot/deposits to what I'll invest in an S+S ISA

OldManLogan

Mrbeethoven said:

OldManLogan said:

bostonerimus said:

Don't get confused, something like VLS60 or VLS80 will be just fine for anyone starting a long term ISA investment. Do not be tempted to get anymore complicated in an effort to get larger returns. However, please read some of the books and websites about UK investing and understand what you are doing and why. It is good to be an educated investor and then you will be able to grasp the arguments for keeping things simple.

Thank you, are there any specific websites or books you would recommend?

You've already mentioned Monevator, that's an excellent resource for UK investors to learn from. If you haven't already done so I would suggest having a good look at the Best Of section and the Passive Investing section.

There are also some very entertaining and useful/relevant posts on the UK site The Escape Artist.

It's also worth a read of The Stock Series on the J L Collins blogsite. It's US but most of it is relevant to the UK as well. It may also provide some comfort when investing during times of market turmoil. 

https://jlcollinsnh.com/stock-series/

All three sites are entertaining as well as informative.

That's great I'll have a read through all of them, thanks for your help

Dh6

Alexland said:

OldManLogan said:

I have a decent pension through work and currently save into a LISA as well for the future

By 'save' do you mean you are using a Cash LISA for age 60+? If so that's inappropriate as the circa 1% interest rate will not keep up with changes in spending power so you are burning your bonus on inflation. Consider transferring to a S&S LISA with someone like AJ Bell Youinvest who are a viable business, accept inbound LISA transfers and offer a wide choice of investments at reasonable charges. Cash LISAs are only suitable for people who will soon be making a qualifying first time property purchase.

I know it’s only 1.4% but I’m using this as a guaranteed investment. Is there a way of guaranteeing this interest amount outside of the cash Lisa?

I will be holding mine until 60 all being well ( another 27 years ). 

My only other investment is in a global index tracker. 

bowlhead99

Dh6 said:

Alexland said:

OldManLogan said:

I have a decent pension through work and currently save into a LISA as well for the future

By 'save' do you mean you are using a Cash LISA for age 60+? If so that's inappropriate as the circa 1% interest rate will not keep up with changes in spending power so you are burning your bonus on inflation. Consider transferring to a S&S LISA with someone like AJ Bell Youinvest who are a viable business, accept inbound LISA transfers and offer a wide choice of investments at reasonable charges. Cash LISAs are only suitable for people who will soon be making a qualifying first time property purchase.

I know it’s only 1.4% but I’m using this as a guaranteed investment. Is there a way of guaranteeing this interest amount outside of the cash Lisa?

I will be holding mine until 60 all being well ( another 27 years ). 

My only other investment is in a global index tracker. 

No, there is literally no way that you can guarantee that you will get 1.4% interest for the next 27 years. Based on history, you would expect the rate of consumer price inflation in the UK to exceed 1.4% (the government generally have a target rate of inflation of 2% but can sometimes be significantly higher). So, even if the rate of 1.4% was guaranteed for 27 years, you'd pretty much be guaranteed to lose value over the timeframe before you can access the money. 

Outside an ISA, you can get guaranteed rates in excess of 1.4%, if you sign up for fixed periods of a fixed term, fixed rate deposits e.g. a year or two. However, there is certainly no guarantee they would definitely beat inflation if you kept rolling them over into new fixed term deposits when they matured over the coming years - and they would not attract a LISA bonus because you wouldn't be doing it in a LISA.

If you are keeping the money in cash because you might need to access it in the coming years, a LISA is probably not an appropriate account because you would need to pay a penalty to get your hands on the money. If you do not need the money for 27 years then it makes more sense to use investments which will grow over the long term even though their value may fluctuate from week to week.

Investments are not really all-or-nothing high investment risk or no investment risk. A global equity index tracker will hopefully grow a lot over 27 years but may temporarily drop 50% or more in value in any given one, two, or three year period. However, not all investments are like that. Most mixed asset investment funds have much lower volatility. If you don't know what investment fund to buy because you haven't done much research yet and still want to make sure you max out your LISA allowance for the current year, it can be fine to just use a cash LISA for now and then transfer it into a S&S LISA once you've taken time to consider the options properly.

OldManLogan

bowlhead99 said:

Dh6 said:

Alexland said:

OldManLogan said:

I have a decent pension through work and currently save into a LISA as well for the future

By 'save' do you mean you are using a Cash LISA for age 60+? If so that's inappropriate as the circa 1% interest rate will not keep up with changes in spending power so you are burning your bonus on inflation. Consider transferring to a S&S LISA with someone like AJ Bell Youinvest who are a viable business, accept inbound LISA transfers and offer a wide choice of investments at reasonable charges. Cash LISAs are only suitable for people who will soon be making a qualifying first time property purchase.

I know it’s only 1.4% but I’m using this as a guaranteed investment. Is there a way of guaranteeing this interest amount outside of the cash Lisa?

I will be holding mine until 60 all being well ( another 27 years ). 

My only other investment is in a global index tracker. 

No, there is literally no way that you can guarantee that you will get 1.4% interest for the next 27 years. Based on history, you would expect the rate of consumer price inflation in the UK to exceed 1.4% (the government generally have a target rate of inflation of 2% but can sometimes be significantly higher). So, even if the rate of 1.4% was guaranteed for 27 years, you'd pretty much be guaranteed to lose value over the timeframe before you can access the money. 

Outside an ISA, you can get guaranteed rates in excess of 1.4%, if you sign up for fixed periods of a fixed term, fixed rate deposits e.g. a year or two. However, there is certainly no guarantee they would definitely beat inflation if you kept rolling them over into new fixed term deposits when they matured over the coming years - and they would not attract a LISA bonus because you wouldn't be doing it in a LISA.

If you are keeping the money in cash because you might need to access it in the coming years, a LISA is probably not an appropriate account because you would need to pay a penalty to get your hands on the money. If you do not need the money for 27 years then it makes more sense to use investments which will grow over the long term even though their value may fluctuate from week to week.

Investments are not really all-or-nothing high investment risk or no investment risk. A global equity index tracker will hopefully grow a lot over 27 years but may temporarily drop 50% or more in value in any given one, two, or three year period. However, not all investments are like that. Most mixed asset investment funds have much lower volatility. If you don't know what investment fund to buy because you haven't done much research yet and still want to make sure you max out your LISA allowance for the current year, it can be fine to just use a cash LISA for now and then transfer it into a S&S LISA once you've taken time to consider the options properly.

Can you hold and pay into a stocks and shares ISA and a stocks and shares LISA at the same time? Or would you only be able to pay into one each financial year?

Alexland

You are fine to contribute to both a S&S LISA and a S&S ISA in the same tax year up to the £4K LISA limit and overall £20K ISA limit. We have been doing both since LISAs started 3 years ago.

OldManLogan

Alexland said:

You are fine to contribute to both a S&S LISA and a S&S ISA in the same tax year up to the £4K LISA limit and overall £20K ISA limit. We have been doing both since LISAs started 3 years ago.

That's great thank you, I'll start with a S&S ISA and can look to transfer my LISA once I'm more experienced. Do you know if you're able to transfer a cash LISA into an S&S LISA after the age of 40? 

Alexland

It is theoretically possible after 40 but I don't know any providers who are financially stable who offer this. HL stopped accepting LISA transfers-in a while ago and AJ Bell have a software issue which stops you opening the account after 40 before starting the transfer. They told another forum member this was on their backlog to fix eventually. If you have an advisor it might be possible on the Transact platform.

OldManLogan

Alexland said:

It is theoretically possible after 40 but I don't know any providers who are financially stable who offer this. HL stopped accepting LISA transfers-in a while ago and AJ Bell have a software issue which stops you opening the account after 40 before starting the transfer. They told another forum member this was on their backlog to fix eventually. If you have an advisor it might be possible on the Transact platform.

Thank you, sounds like this could cause problems so best that I make the decision before 40

Alexland

Yes I don't know if Cash LISAs will have a similar or worse problem eventually with difficulty switching after 40 and problems getting a favourable rate once provider attention moves to signing up customers into newer products.

At least with S&S (as we have seen with discontinued Child Trust Funds) the returns will still be based on the markets rather than provider rates.