Lifetime ISA
This is the ‘wrapper’ I will be investing inside of for this tax year.
Why? Because the government gives you a 25% bonus!
We are only able to contribute £4,000 per year, out of the £20,000 allowance, but it makes sense if you are only able to contribute £4,000 or less to invest inside a LISA.
That £4,000 invested will become £5,000. A risk-free 25% return!
Of course, there are drawbacks. LISA providers often have higher fees, although this is greatly offset by the 25% government bonus.
Another drawback, the main drawback, is that the money can only be used for specific things – either buying your first house or for retirement.
But, our guess is that you will either buy a house or retire at some point, so depending on how you see it, this may not even be a drawback.
Stocks & Shares LISA
To go one-step further, inside of your LISA you can either ‘invest’ in cash or invest in stocks and shares.
Cash LISAs only offer around 1% – not great it seems. But add that on top of the government bonus and you’ve just made a 26% risk-free return!
No such thing as a free lunch. There is such a thing as a free 26% return on the first £4,000 invested!
However, I choose to invest in stocks and shares inside of my LISA. Specifically, in index funds.
I dollar-cost average into a global, diversified, index fund each month. Whatever I choose to invest, the government will give me a 25% bonus within 4-6 weeks.
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Making Money Simple
Do you invest in a tax-free account?