18 years old with £10,000 sat in a bank account... what is the best option

Redgrape54

I'm 18 years old and currently looking for ways to build future wealth. I have money already invested into VLS 100 (vanguard), with all intention with holding and investing further for decades. 

I have aprox £10,000 sat in a bank account and wondering what would be the best option for it. 
First being a lifetime ISA, as the 25% return would be ideal especially as a goal of mine in the near future (3-4 years) would be to purchase a house, but is this the best option? A potential could also either be a Global or VUSA ETF. 

I would really appreciate advice and would be open to other options if they were viable.

P.S- I have a relatively high tolerance for risk. With no student debt, living at home.

MallyGirl

Advice is a regulated activity but we can offer comments based on our own opinions and no qualifications in the field whatsoever
If you are looking to buy a house then a LISA seems like an obvious choice. I'd probably go global equities rather than restricting to one (admittedly large) market segment. It still could be a bumpy ride in the 3-4 years till you buy a house so are you really prepared for that?

Redgrape54

MallyGirl said:

Advice is a regulated activity but we can offer comments based on our own opinions and no qualifications in the field whatsoever
If you are looking to buy a house then a LISA seems like an obvious choice. I'd probably go global equities rather than restricting to one (admittedly large) market segment. It still could be a bumpy ride in the 3-4 years till you buy a house so are you really prepared for that?

I think so... It doesn't sit right with me the fact that the value of my savings is falling by such a ridiculous amount due to inflation. Especially when trying to get onto the property ladder I need to withhold all of the purchasing power I can.
Are risks of a LISA mediated buy the government bonus? As even if the value falls by multiple percentages points there is a guarantee on 25%. Also in your opinion are there any specific LISAs you would advocate?

[Deleted User]

Firstly, can I say very well done for being so proactive!

I'm currently offering my opinion to my children, nieces, nephews etc.
Slow and steady wins the race. Don't go chasing a fast buck, compound interest will look after you. (Having said that, a modest allocation into 'high risk' investments is arguably a good move, particularly looking at long term).
Read up on 'cost averaging'. Drip money in monthly rather than buying all at once.
It's been shown time and time again that it's difficult to beat indices over the long run by picking your own stocks.
Stick with low cost, broad based funds and you won't go far wrong.

ISA, LISA and pensions all have their own merits, in my opinion a combination is probably the best way forward if funds allow.
LISA appears a no-brainer if you plan on buying a property in the future.

My eldest has an AJ Bell LISA and is currently buying a basket of funds @£400 per month (£400 x 12, £4,800 which roughly matches £4,000 + £1,000 govt bonus).

And to remind again, always think compound interest. Little acorns today can be big oak trees in the future.

Good luck with it, being so aware at 18 is setting you up for a good future!

Redgrape54

[Deleted User] said:

Firstly, can I say very well done for being so proactive!

I'm currently offering my opinion to my children, nieces, nephews etc.
Slow and steady wins the race. Don't go chasing a fast buck, compound interest will look after you. (Having said that, a modest allocation into 'high risk' investments is arguably a good move, particularly looking at long term).
Read up on 'cost averaging'. Drip money in monthly rather than buying all at once.
It's been shown time and time again that it's difficult to beat indices over the long run by picking your own stocks.
Stick with low cost, broad based funds and you won't go far wrong.

ISA, LISA and pensions all have their own merits, in my opinion a combination is probably the best way forward if funds allow.
LISA appears a no-brainer if you plan on buying a property in the future.

My eldest has an AJ Bell LISA and is currently buying a basket of funds @£400 per month (£400 x 12, £4,800 which roughly matches £4,000 + £1,000 govt bonus).

And to remind again, always think compound interest. Little acorns today can be big oak trees in the future.

Good luck with it, being so aware at 18 is setting you up for a good future!

I'm currently investing a couple hundred a month into the VLS account, mainly aimed to being my retirement fund. I'm really just trying to build habits at the moment and as you said investing in large chunks of money often leads to a lower return. 

Also, I'll take a look further at the AJ Bell LISA as I already know about their low AFC. I was looking at Nutmeg as a LISA provider, but the problem is that there is so much information to sift through on the internet. I'll make sure to do some further research and set up my LISA.

I'll stick to little and often

Albermarle

I'm currently investing a couple hundred a month into the VLS account, mainly aimed to being my retirement fund. I'm really just trying to build habits at the moment and as you said investing in large chunks of money often leads to a lower return. 

If you are really saving for retirement, then you would be better to invest within a pension, as you will get tax relief, Although the amount of relief you can get will depend on your income, if you have any? Maybe you are employed and already have a workplace pension?

Statistically investing lump sums actually gives a better return on average, but can be a bit nerve wracking.

Your time scale for investing in the LISA is a bit short, and we would normally recommend staying in cash, for anything below 5 years. However as you have said you are comfortable with risk and want to invest, then OK, but due to the short time scale you may be wise to avoid 100% equity investments, and go for something a bit more medium risk. 

Exodi

Please be aware when investing in the VLS products (and target retirement funds) that they have a significant home bias.

VLS100 invests 25.1% in UK equities, whereas metrics like the FTSE All World Index put UK equities at 3.89% of global market capitalisation. Some may deliberately choose to over-invest in the UK, but personally I'm not one of those people. I am not particularly bullish on the UK...

https://research.ftserussell.com/Analytics/Factsheets/Home/DownloadSingleIssue?issueName=AWORLDS&IsManual=false

Vanguard has other funds that have weighting aligned to global market capitalisation:

https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-all-world-ucits-etf-usd-distributing/overview
https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc

Exodi

Redgrape54 said:

I think so... It doesn't sit right with me the fact that the value of my savings is falling by such a ridiculous amount due to inflation. Especially when trying to get onto the property ladder I need to withhold all of the purchasing power I can.
Are risks of a LISA mediated buy the government bonus? As even if the value falls by multiple percentages points there is a guarantee on 25%. Also in your opinion are there any specific LISAs you would advocate?

What risks are you talking about? It sounds that perhaps you are referring to a Stocks & Shares LISA rather than a Cash LISA? It's important to be clear as 3-4 years is not a great time frame to be thinking about punting money on global equities and some may suggest it wiser to put your money in a Cash LISA instead of a S&S LISA.

Also I would try not to overthink about the erosion of your 'purchasing power' due to inflation. House prices and inflation don't run parallel to each other - and most economists expect that while inflation remains high, house prices will decrease (due to interest rates being raised to combat inflation > mortgages become more expensive > more expensive mortgages = less people able to buy > less demand = lower prices).

enthusiasticsaver

If you want to buy a house and are a first time buyer then a LISA is a good option to check out.  Advice on Investing in stocks and shares is regulated so we are unable to advise on particular funds.  The main thing is not to invest outside your appetite for risk and diversify as much as possible.  The VLS funds are popular on here but do lean towards the UK.  What the performance of the stock markets will be for the next three or four years though is anyones guess.  If you are definitely going to need the £10k within the next 5 years then you need to be aware that investing on the stock market risks the capital.  It may be somewhat ameliorated by the 25% government bonus on the LISA but you get that bonus if you invest in a cash or fixed term isa as well as stocks and shares isa. Only you can decide if you are willing to risk loss of capital weighed against loss of value due to inflation.  Also house prices go up and down and not necessarily at the same rate as inflation or stock market indexes. 

duckson

My 18yr old son has an AJBell LISA and buys AJBell's own balanced fund monthly. It seems to a decent balance given we don't know when he'll be wanting to use it (guessing at least 7 years).

https://www.youinvest.co.uk/market-research/FUND:BYW8RX1?tab=0&SecurityToken=F00000YOVZ]99]1]FXALL$$ALL_1392&Id=F00000YOVZ&ClientFund=1&CurrencyId=GBP&ms-redirect-path=/1c6qh1t6k9default.aspx

He also has a Vanguard S&S ISA buying their FTSE Global All Cap.

Redgrape54

Albermarle said:

If you are really saving for retirement, then you would be better to invest within a pension, as you will get tax relief, Although the amount of relief you can get will depend on your income, if you have any? Maybe you are employed and already have a workplace pension?

Statistically investing lump sums actually gives a better return on average, but can be a bit nerve wracking.

Your time scale for investing in the LISA is a bit short, and we would normally recommend staying in cash, for anything below 5 years. However as you have said you are comfortable with risk and want to invest, then OK, but due to the short time scale you may be wise to avoid 100% equity investments, and go for something a bit more medium risk. 

I have a workplace pension that I contribute 7% to, of which is matched by my employer. 

Interesting, I'll look into that further.

Perhaps, I can re-evaluate the time scales of when I'll purchase a property and then it'll be a wiser investment. Bonds don't seem too risk adverse at the moment, so commodities could be an option?