Stocks and Shares ISA/LISA

BengaliBunny

Hello all,

I hope you don't mind me asking about S&S ISA/LISAs.  For context, I am 36 and have never invested before as it took me forever to get on the property ladder in London.  I know I should probably start working on my pension but I just can't stomach that at this moment in time.  I want to at least max out this year's ISA allowance so time is ticking, but I figure I should at least start something as I am so behind the curve.

Tackling the LISA first, I have £4k I can deposit as a lump sum.  I believe if I do this it makes sense to go with AJ Bell although I did see on a YouTube video people saying HL are cheaper until about £12k then AJ Bell is cheaper but I think this is only if you want to buy I think are index funds on a regular basis.  So my question is why would you want to buy funds rather than buy once than forget it?  I saw a person comment on a YouTube video that it would be best to stick £4k into AJ Bell and buy into the S&P 500 and forget about it but that most people struggle to have the £4k in one go ... does this make sense for my position?  As you can tell I am very limited in my knowledge and I have been watching YouTube videos and reading up on investing but I admit I find this topic really difficult to digest.  

I guess in terms of the actual ISA itself, my query is similar.  I have seen YouTubers do a tier list and Invest Engine seems to come out on top for a couple so I think I could put £16k cash in one go into them.  However, again ... what is the benefit of buying regularly versus sticking it all in and forgetting about it?  Are there any ways of also having a maximum medium risk portfolio ... whilst I can 'forget' about this money for the time being, I can't just outright risk it ... does this make sense?

Anyway I hope this provides enough information and would be so grateful if anyone can help a total newbie ... I just figure I am old enough now to start being an adult and actually do something ... this £20k has been sitting in my bank account for a year earning no interest and all I keep hearing is I am losing money due to inflation.  I just feel I can't win but I know being scared will not help so any advice on helping me take the plunge would be much appreciated.

Thank you!

BB

El_Torro

I wouldn’t worry too much about the choice of platform. Both AJ Bell and HL are solid choices. The important thing is to start investing.

Remember that a LISA only makes sense if you plan to lock the money away until you’re at least 60. ISAs are more flexible. 

It may be a good idea to stick to ISAs for now and when you’re up to it start focusing on your pension. Hard to say without knowing more details about your situation though.

Albermarle

 For context, I am 36 and have never invested before as it took me forever to get on the property ladder in London.  I know I should probably start working on my pension but I just can't stomach that at this moment in time.

I think you need to expand on this comment .

Do you actually have a pension ? If so who with/what type?

Within most pensions , your money is actually in investments, so you might well already be an investor .

Why can you not stomach working on your pension but want to invest outside a pension . Can you just explain the logic behind this so we can understand your situation better ?

BengaliBunny

Hello again,

Thanks so much for the prompt response, I really appreciate it.  To provide some further clarity, I am currently a contractor so I believe I am employed by my umbrella company via PAYE.  I am with Options and apparently I am paying in £67.76 and my employer contributes £25.41 and my current fund value is £2505.71!!  I know this is my fault but I need to be a day rate contractor as perm-wise I just couldn't get on the property ladder and now I feel more comfortable but is why I am now freaking out about the fact I have not saved into a pension nor have I done ANY investing!

On the 'plus side', I am obsessed with overpaying my mortgage so I have £125k to go, not the best but with my contracting salary it could go by the time I am 40 with the caveat I stay employed and at the same rate.  

So the reason I am scared about paying into my pension is I believe I can pay up to £40k but that is 'gone' until I can access it at 60 ... who knows if I live that long?  The LISA was attractive because it is only £4k.  If push comes to shove, I will be penalised I know but at least I can access a S&S ISA/LISA I think?

What my thinking was to put in £16k S&S ISA and £4k LISA this FY, then for the rest of the year I could pay up to £20k into premium bonds (I have zilch there too ... ) but I just want to make sure I have savings as I have none bar the £20k I will pump into investing shortly hopefully.  Then next year I will overpay 10% of my mortgage and start paying that off in full as my product is up middle of 2023 but overall, my goal is to have £50k premium bonds, each year max out £16k S&S ISA and £4k LISA and of course be mortgage free.  This is all contingent on many things, not least keeping a decent contracting role ongoing and not getting hit by a bus for example.  But I was planning on trying to pay off the mortgage at least before starting to pump money into my pension.  Like I said locking that away until I am 60 worries me ... unfortunately I have no dependents and once my mum goes I am alone.  I have no one else who will help me so the pension seems like the least of my worries. 

I do realise I am probably not doing the 'right thing' and if I reach 60 I will likely regret it, but equally I can't do everything!  Savings, investments, pension, property ... it is too much!  So at the very least I just thought at least do the £16k S&S ISA and £4k LISA, as El_Torro says its just to start investing as I have never done it and need some time to start compounding.  But the pension I think it just too much for me to lock away for forever it seems lol.  Also I must be a higher rate taxpayer now but if I am ever between contracts I won't be obviously so thought the pension is better now but the LISA might not be so bad later on down the line.  We never know what is around the corner after all

I hope this provides more clarity.  If you could please advise based on the above you think maybe just put £20k into the S&S ISA fully and just forget the LISA that would be much appreciated, but I admit the government bonus was attractive.  £4k is also feasible at the moment although I am aware it might not be but I just thought it was a good start.

Again thanks for your help in advance

BB

Albermarle

So the reason I am scared about paying into my pension is I believe I can pay up to £40k but that is 'gone' until I can access it at 60 ... who knows if I live that long? 

I do not think anyone was going to suggest putting £40K pa in the pension, that is just the maximum allowed. Currently the average age that someone is expected to live in the UK is about 82 and that means 50% will live longer than that.

Both pension and Lisa contributions effectively get a 25% bonus. Probably the pension will be available to take ( if you want to) at 58 and the Lisa at 60 . The main advantage of the Lisa is that it is not taxable whilst the pension is partly taxable. The Lisa though is restricted to a much lower limit of £4kpa and you can not contribute past 50 . If you go down the Lisa route make sure it is a stocks and shares lisa and try to leave it alone until you are older.

Whether you should overpay your mortgage instead of investing more, is a matter of much debate on this forum . 

MallyGirl

Hi
you mentioned compounding - that is an important concept. You often see phrases like "Time in the market rather than Timing the market". It is definitely worth looking at investments as savings are falling way behind inflation.
I was like you and focused on paying off the mortgage for a long time - I did pay it off once but then made another move so got back on the train. Now I am contributing more than half my salary into my pension to try and catch up (plus I want to retire earlier than 67). The comment I will make on that is that your mortgage interest rate is likely to be very low so there will be ways to make your money work harder. I would say it is worth bringing your LTV down by overpaying in order to get access to the best remortgage deals but after that pensions should get more focus.
The vast majority of people live far longer than 60 and if you are one of the very unlucky ones then that pension money is not lost and can be inherited by someone you leave behind (or a charity). Do you have a genuine reason to think that you will not live a full life span or was it a throw away comment. It makes a difference to how people can help.
There are significant tax breaks to paying in to a pension and the longer that money is invested the more it gets the chance to grow. Prioritising the mortgage over the pension means that there won't be as much growth time once the pension reaches the top of the list. Also, due to inflation and pay rises, the mortgage payment in the future may well be a lower proportion of your take home (unless you move again).
You ought to check whether your umbrella offers pension contributions via salary sacrifice as that gives NI breaks as well as tax. A rough rule of thumb is often mentioned that you ought to contribute half of your starting age as a percentage into your pension if you want to build up enough to have a decent retirement. This means that at 36 you should be looking at an 18% contribution between you and your employer. It sounds like you are way down on that.
If you are on over £100k then a pension contribution to bring you down under that is even more important.

BengaliBunny

Hi Albermarle and MallyGirl,

Thank you so much for coming back.  I did look into salary sacrifice and it would cost me an extra £20 per month just to have my umbrella company do the salary sacrifice so I just thought forget it.  Its not much money obviously but based on my thinking above, I thought temporarily leave the pension particularly as it will cost money to do it and just concentrate on investing (as I have done nothing but at least with S&S ISA I can at least get the money back albeit penalised) and having savings via Premium Bonds as once the £20k goes I have zilch!

This is the problem too ... I feel like I am flapping around and don't know which way to turn ... MallyGirl you are right I am totally up the creek with no pension

To answer your question, no I don't have a debilitating condition meaning I think I will die early but this is quite painful and embarrassing to admit but I don't particularly want to rattle around by myself in my old age.  But I am 36 not 96 and I am trying to be positive and move forward in my life hence why I thought whilst I can before the end of the financial year I would put the £20k I have saved to good use as per El_Torro's advice (thank you!).  I know I need to put into my pension as a priority but maybe in about 2/3 years maximum and then I will do as you say and just pump all my money into that.  

That being said, please can someone help with my initial query ... if I do the lump sum should I stick with AJ Bell or HL?  Also whilst it is slightly a moot point as I won't have £4k saved up but then is it best I do £333.33 monthly or save up the £4k and again lump sum it?  With the £16k I think I will definitely have to do lump sum now to beat the deadline but then next year do monthly but I don't think I can do £1333.33 but I will try and max that out too, the £4k is just a bit more reasonable and the bonus is attractive.  I think technically I am over £100k now as I am a contractor but who knows I may be unemployed once my contract ends in June lol

Thank you again and sorry for the sob story, it is crazy because job-wise I am not doing badly although to be fair it has taken years to get here ... but then I think of investments/pension/savings/mortgage and I bury my head in the sand because I have nothing it feels ... this is the curse of London and I know I am not alone but it is very hard to feel at peace when I am so far behind

But I am trying to be positive, move forward and hopefully before 5th April I have a shiny new S&S ISA and LISA

Thanks again!

BB

Albermarle

 I thought temporarily leave the pension particularly as it will cost money to do it and just concentrate on investing (as I have done nothing but at least with S&S ISA I can at least get the money back albeit penalised) 

You should be clear in your mind that pensions and investing are not two different things . Your pension will be invested in stocks and shares . The difference between investing in a pension or outside the pension, is just the tax treatment and restrictions on withdrawal ( or not ) .
I realise your income is variable and probably you will not know until the tax year ends if you will be a 40 % taxpayer or not.
Just to say for the future that pension is the stand out place to invest for a 40% taxpayer due to the very generous tax relief.

That being said, please can someone help with my initial query ... if I do the lump sum should I stick with AJ Bell or HL?  Also whilst it is slightly a moot point as I won't have £4k saved up but then is it best I do £333.33 monthly or save up the £4k and again lump sum it? 

Both providers are fin and at this level any difference in charges will be small. Probably for lump sums AJ Bell will be cheaper but for regular monthly investing it is probably the other way around ,
Statistically it is better to put in a lump sum at the start of the year but you might be unlucky and the market drop soon after .
I would just do whatever suits your finances.