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L-ISA Investment for House Deposit.
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- Lemon Slice
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L-ISA Investment for House Deposit.
Hi, first post on LF.
My son has started saving for a house and asked for advice on how best to save. We considered a Help to Buy Isa, but the L-Isa with its higher savings limit seemed the better option. We then discussed simple savings in cash or investment. I felt that over his proposed plan to buy in 4-5 years the stock market might give a better return, but of course with inherent risks. So this has led to a discussion of where to invest and I felt that Investment Trusts would be cheaper for him to hold on the HL platform and suggested that either Finsbury Growth and Income and WITAN or both would give him enough safety as there is a fairly global spread of investment, with a return that would exceed a building society deposit. The problem is I am worried that even this is too sophisticated and a simple Global Tracker might be better.
He will be saving 4k/year plus the 25% uplift from the government.
Any thoughts?
My son has started saving for a house and asked for advice on how best to save. We considered a Help to Buy Isa, but the L-Isa with its higher savings limit seemed the better option. We then discussed simple savings in cash or investment. I felt that over his proposed plan to buy in 4-5 years the stock market might give a better return, but of course with inherent risks. So this has led to a discussion of where to invest and I felt that Investment Trusts would be cheaper for him to hold on the HL platform and suggested that either Finsbury Growth and Income and WITAN or both would give him enough safety as there is a fairly global spread of investment, with a return that would exceed a building society deposit. The problem is I am worried that even this is too sophisticated and a simple Global Tracker might be better.
He will be saving 4k/year plus the 25% uplift from the government.
Any thoughts?
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- The full Lemon
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Re: L-ISA Investment for House Deposit.
Welcome to TLF! Funnily enough I was discussing just this point with my daughter in respect of her daughters (my grandchildren) The L-ISA they are advised about at Uni apparently and they have now both opened one. They are invested in ITs. Your choice sounds good. I think I would just go for Finsbury but certainly two trusts might give you a better spread.
Some here will advocate a tracker of course. I could not argue against them but prefer my own choice of IT.
Dod
Some here will advocate a tracker of course. I could not argue against them but prefer my own choice of IT.
Dod
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- Lemon Slice
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Re: L-ISA Investment for House Deposit.
Thank you Dod for your reply. Long time lurker for financial education on this board. After a sudden change of circumstance I will be putting up another more complex question in a few weeks time and I hope you and the regular LF contributors will be able to offer some opinions.
Out of interest, did your grand daughters express any ethical reservations about stock market investing?
Out of interest, did your grand daughters express any ethical reservations about stock market investing?
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- The full Lemon
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Re: L-ISA Investment for House Deposit.
She has never discussed ethics with me in any form. She is actually doing a business degree and is pretty switched on as far as finance is concerned.
Dod
Dod
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- Lemon Slice
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Re: L-ISA Investment for House Deposit.
4 - 5 years in the stock market could return a lot more, or a lot less than cash. If she's happy with the timing risk that in 4 - 5 years we could be in a stock-market down-turn, or still recovering from one, then a couple of ITs would seem a good choice. To mitigate the risk, maybe one of the 2 could be Capital Gearing Trust, which has a good track record of not dropping a lot during a down-turn, but also seems to manage better than you might expect growth performance.
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- Lemon Slice
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Re: L-ISA Investment for House Deposit.
Good point Jonesa1, thanks for that. TBH so long as the return exceeds a BS rate I'm sure he will be content since the bulk of the gain will come from the Government uplift.
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- Lemon Quarter
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Re: L-ISA Investment for House Deposit.
airbus330 wrote:Good point Jonesa1, thanks for that. TBH so long as the return exceeds a BS rate I'm sure he will be content since the bulk of the gain will come from the Government uplift.
There’s a decent chance that over a 5 year period, the return will not exceed a BS rate. I would suggest you ask him whether he would be happy with a coin toss where over 5 years heads gives +60% and tails gives -20% (ignoring the govt uplift). If he isn’t comfortable with a decent chance of loss then this isn’t for him.
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- Lemon Slice
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Re: L-ISA Investment for House Deposit.
Again, a good point and it has been discussed. Over the next 5 years there is a reasonable chance of a sizable correction, but even if he ends up at -20% in 5 years time, he will still have his original stake money. But this thread has made me think that all in Finsbury/Witan might be a bit to high stakes.
Re: L-ISA Investment for House Deposit.
Pound cost averaging will help counteract stock movements under a regular saving regime.
HL are a bit dear buying IT's on the drip (I use them and am on the right side of their £45 charge ceiling to just hold in an ISA) so maybe investigate the regular saver options but that leads to my overarching point.
The earnings variability and likely house price movements are the biggies here, not investment returns.
A full on market crash and losing a job matters, and if you get away with that,the drop in the 90% of the house price that you were borrowing matters, not the return on the deposit.
Either suggestion will get the job done to within a rounding error.
HL are a bit dear buying IT's on the drip (I use them and am on the right side of their £45 charge ceiling to just hold in an ISA) so maybe investigate the regular saver options but that leads to my overarching point.
The earnings variability and likely house price movements are the biggies here, not investment returns.
A full on market crash and losing a job matters, and if you get away with that,the drop in the 90% of the house price that you were borrowing matters, not the return on the deposit.
Either suggestion will get the job done to within a rounding error.
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- Lemon Slice
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Re: L-ISA Investment for House Deposit.
The government give you 20% back for your LISA. So, as long as you pick any investment that does not fall by 20% it's hard to see how you can lose.
Given this is money that will be wanted for a mortgage and will hurt if it's value doesn't beat a Building Society, then something yielding about 4% should be safe enough. Of course, investing 1 month before a general election is a risk so may be better to see where we are after that as there may be a large move on many stocks (even overseas stocks due to exchange rate movements)
Finally commission costs eat up your returns on a £4k investment. We split my daughters ISA into 2 lots of £2k and bought 2 different shares with the intention of forgettting about for 5-7 years. I think that's the best approach. It's worked out very well but she had the (retrospective) benefit of investment when the FTSE began with a 6 rather than a 7
Given this is money that will be wanted for a mortgage and will hurt if it's value doesn't beat a Building Society, then something yielding about 4% should be safe enough. Of course, investing 1 month before a general election is a risk so may be better to see where we are after that as there may be a large move on many stocks (even overseas stocks due to exchange rate movements)
Finally commission costs eat up your returns on a £4k investment. We split my daughters ISA into 2 lots of £2k and bought 2 different shares with the intention of forgettting about for 5-7 years. I think that's the best approach. It's worked out very well but she had the (retrospective) benefit of investment when the FTSE began with a 6 rather than a 7
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- Lemon Quarter
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Re: L-ISA Investment for House Deposit.
airbus330 wrote:Again, a good point and it has been discussed. Over the next 5 years there is a reasonable chance of a sizable correction, but even if he ends up at -20% in 5 years time, he will still have his original stake money. But this thread has made me think that all in Finsbury/Witan might be a bit to high stakes.
Vanguard LS80 or LS60? Massive diversification, low costs and a very good chance of outperforming cash over a five year view.
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- Lemon Slice
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Re: L-ISA Investment for House Deposit.
Spet0789 wrote:airbus330 wrote:Again, a good point and it has been discussed. Over the next 5 years there is a reasonable chance of a sizable correction, but even if he ends up at -20% in 5 years time, he will still have his original stake money. But this thread has made me think that all in Finsbury/Witan might be a bit to high stakes.
Vanguard LS80 or LS60? Massive diversification, low costs and a very good chance of outperforming cash over a five year view.
Yes, this was the default option if we went down the OEIC route, which has the advantage, as Gan020 pointed out, of avoiding the dealing costs of a regular contribution. I worry that LS has a large UK exposure, but that may be an advantage after the General Election results. Crystal ball gazing.
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