Increasing deposits in light of covid19?

JustAnotherSaver

Alexland said:

but then setup a regular £1.50 trade of £416.66 per month (to include the bonus, or maybe a bit less to allow for platform fees which can be paid from the general account on request) to start from after the second regular contribution is made. Otherwise if investing the bonus separately that would be 24 trades per year.

I'm sorry but i must have read this bit about 10 times now and i still don't get it. I get the bit beforehand about £333.33 (£4k allowance divide by 12 months in the year) but not that bit.

Also, i understand that i could just put £4000 in on day 1 and take only 1 hit of £1.50 but is that wise and is that on the lines of timing the market? Or not so much?

So let's say day 1 was days before the stock market started dropping off with this coronavirus. All is well and you lump in £4000. Then things start dropping massively.

Not so good.

Surely much better to add in monthly so you're hedging your bets so to speak.

I understand that if the market was the reverse and instead it was going up and up and up then you'd want to put everything in on day 1 but if your gamble is to average out?

Not sure what is the best approach ---- 12 payments or 1 maximum payment. I suppose there isn't a right answer to that but still.

Alexland

JustAnotherSaver said:

Alexland said:

but then setup a regular £1.50 trade of £416.66 per month (to include the bonus, or maybe a bit less to allow for platform fees which can be paid from the general account on request) to start from after the second regular contribution is made. Otherwise if investing the bonus separately that would be 24 trades per year.

I'm sorry but i must have read this bit about 10 times now and i still don't get it. I get the bit beforehand about £333.33 (£4k allowance divide by 12 months in the year) but not that bit.

OK so you are contributing nearly £4,000 per tax year into the LISA cash balance via regular payments of £333.33. Each of these individual contributions will earn a 25% government bonus of £83.33 which will be added into the account cash balance a month or two later.

If you were to pay £1.50 to invest every time the cash balance increases due to a regular contribution or the associated government bonus being added that would be 24 trades per year - 12 for the contributions and 12 for the bonuses.

So in terms of investment you want to invest nearly £5,000 per tax tear via regular transactions of £416.66 per month. Although if the platform 0.25% fee is also deducted from the cash balance then maybe you want to invest a bit less. Another option is to pay the account fees from a separate general account (if you send them a message requesting this option) in which case you can invest the full LISA cash balance.

Problem is that you will only have a cash balance of £333.34 in the first month (as the bonus hasn't arrived yet) but in month 2 you will have a cash balance of £666.66 which is enough to pay the £1.50 to invest £416.66. So you start the regular investment for just over 1 month after the regular contributions start.

On the other question it's generally best to invest the money as soon as you have it (as the stock market direction is generally upwards - hard to believe in recent weeks). So if you have £4k at the start of each tax year then that would be better and cheaper to invest as a lump sum as it would be 2 trades per tax year - one for the £4k contribution and another for the £1k bonus later.

Still if you don't have the money upfront then regular contributions are the next best option. Regardless of if you go annually or monthly then over a long enough period you are getting dollar cost averaging.