From April 6th 2017, a tax efficient savings account will be available for anyone between the ages of 18 to 40. I fall into this age bracket so I decided to put together a basic spreadsheet to figure out whether LISA’s are worth looking into – you can look at my spreadsheet below if you like (there is a download link below the spreadsheet).
You can find a good summary of LISA’s here at moneysavingexpert.com so I will not explain them in detail. The wrinkle I have added is a very simple strategy of investing in a low cost investment vehicle. I did the analysis using a stocks and shares LISA not a cash LISA, which in real terms given current interest rates would wind up costing you money (since inflation > interest earned on cash).
This is the investment vehicle I have used in my calculations. I have assumed a long term return of 6.5% per annum which includes dividend reinvestment. It is designed to replicate the performance of the FTSE 100 index and charges only 0.09% in fees (over time this fee can make a substantial difference to your overall return). For example, an 18 year old paying in £4,000 per year until age 60 would be £359,314 worse off paying 1.5% in fees rather than 0.09% – amazing but true (see for yourself using the calculator and read this book – you will understand why money managers get a much better result than their clients).
Compared to pensions, LISA’s have their pro’s and con’s and I will leave it to you to figure out which you should invest your money in (if you are not sure get some advice from a properly qualified professional – but be mindful of fees!) Also bear in mind, the 25% government bonus could be reduced at any time.
I just wanted to illustrate a simple, tax efficient and low effort way for anyone starting out to invest for the long term without taking excessive risk.