While the LISA can be a great way of saving for a first home, my priority is growing my retirement savings via growth-focused stocks and funds. After all, any capital gains made via investments are tax-free. One example of the latter I’ve started building a position in this month is Marlborough Nano-Cap Growth.

My latest LISA buy

Nano-Cap aims is to increase investors’ capital by more than the FTSE SmallCap Index (ex-Investment Companies) through buying the best of the UK’s listed minnows. At the time of writing, these include software business IQGeo, metal recovery business Jubilee Metals, and leak fixer Water Intelligence.

In terms of sector breakdown, the Nano-Cap Growth fund has almost 30% of assets invested in tech businesses. This shouldn’t come as a surprise considering the fund’s growth-focused approach. Collectively, Industrials and Consumer Discretionary companies make up another 30%. However, just 3% is invested in ‘Steady Eddie’ Consumer Staples.

So, why pick this fund for my Lifetime ISA over others?

Top performer

Well, the long-term performance has been great. According to Trustnet, the fund has delivered a 179% return since August 2016. Its benchmark has ‘only’ doubled in the same five-year period. This ranks Marlborough Nano-Cap Growth second out of a field of 45 funds dedicated to this part of the market.

Comparing this to the derisory performance of the FTSE 100 (up 4%) also helps explain why I definitely want some exposure to small-cap stocks in my LISA. Consider the gains I could make if I held this for 10, 15, or even 20 years! 

Expect volatility

Of course, the pursuit of higher returns comes at a cost. As experienced Fools will know (and newbies quickly discover), market minnows can soar in value on just a bit of news. Unfortunately, the opposite is equally true.

Yes, the diversification offered by the fund gives some protection. However, a rollercoaster ride is still quite possible.

This specific fund might also underperform. In fact, Nano-Cap Growth has returned 6% less than its benchmark over the last six months.

Obviously, judging form on such a short period makes little sense. Nevertheless, it’s important for me to keep track of how things are going to make sure the fees I’m paying to hold this in my Lifetime ISA are still worth it. 

Ah, yes, fees. To be frank, the 0.67% ongoing charge I’m paying via my broker isn’t that high for a specialised fund. That said, it’s still a lot more than I’m paying for a passive Vanguard small-cap fund I hold in another account. Picking my own stocks (which I also do) would avoid these charges completely. 

Sitting still

Buying Nano-Cap Growth for my Lifetime ISA now may not turn out to be one of my better decisions, at least in the short term. Since I’m terrible at timing the market, I know it’s better to be invested than not.

The key to successful investment returns isn’t so much about what you do, it’s about sitting tight and not doing anything! 

The post 1 fund I’ve been buying for my Lifetime ISA in August appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers owns shares in Marlborough Nano-Cap Growth. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I would go so far as to say that if you fall into this age bracket and do not already have a Lifetime ISA, I think you should open one today to make the most of this fantastic opportunity.

Growing demand

Introduced a couple of years ago to help young people start saving, the Lifetime ISA was initially attacked for making the ISA system more complicated. However, as consumers have become used to the idea, savers have signed up in droves. A total of 268,000 people have signed up since its launch in April 2017.

If you are aged 18 to 39, you can open a Lifetime ISA and save up to £4,000 tax-free each year. You can keep saving right up to, and including the day before your 50th birthday. The government will pay a 25% bonus on any contributions, up to a maximum of £1,000 a year. 

On top of this, any interest income received or capital gains generated on the money you save are tax-free. 

Unfortunately, there are some caveats to this tax-free wrapper. Any withdrawal before the age of 60 or for any other reason apart from the acquisition of your first home, will attract a 25% government withdrawal charge. Also, if you close your Lifetime ISA after you reach age 40, you won’t be able to open a new one although you can continue to save into one up to your 50th birthday. 

Market returns

The cash bonus, coupled with the tax-efficient benefits of an ISA wrapper are the two primary reasons why I believe this is one of the most fantastic ways to save for the future. 

Investing the money you save into a Lifetime ISA is the best way, in my opinion, to achieve the best returns.

Over the past decade, the FTSE 100 has produced an average annual return for investors in the region of 8%. In comparison, the best Lifetime ISA cash interest rate available on the market today is just 1.4% — that’s a big gap. 

At this rate of return, assuming a saver puts away the full £4,000 a year, including the extra £1,000 government bonus I calculated they could build a savings pot worth £202,000 over 32 years of saving (from 18 to 50).

However, if the same saver put away the same £5,000 a year, but invested this money in a FTSE 100 tracker fund, rather than holding it in cash, I calculated they could accumulate savings of nearly £745,000.

Multiple benefits

Investing not only gives you the chance to earn higher returns, but it also helps you diversify outside of the UK.

For example, more than 70% of profits from FTSE 100 companies come from outside the UK, so in the event of a messy Brexit, investors shouldn’t be left too out-of-pocket. 

Also, by using a low-cost index fund, you can get exposure to some of the largest companies in the world at the click of a button without having to spend hours researching each opportunity or racking up hundreds of pounds in trading commissions. 

So, that’s why I think you need to open a Lifetime ISA today and start investing your money as well. 

The post Here’s why I think you need to open a Lifetime ISA appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

That’s why so many investors become obsessed with trying to time the market. Trouble is, the majority of us are absolutely awful at it — buying at the highs and selling at the lows.

Personally, I think there are far more important things to worry about.

1. Paying exorbitant fees

Since research has shown very few fund managers are able to outperform the market on a consistent basis, I’m averse to keeping too much of my capital in (expensive) actively managed funds.

In my view, it’s far better to buy a low-cost passive fund that tracks the FTSE 100, for example, than an income fund that specialises in UK large-cap stocks.

Even if the latter does manage to beat the former, it often becomes a false economy when fees are deducted. And that’s when things go well. 

Moreover, the performance of professional investors is judged on a quarterly or annual basis. As a result, they’re often forced to jettison otherwise solid stocks in favour of those that are temporarily outperforming (and priced accordingly).

As a private investor, you only have to justify your decisions to yourself.

2. Being insufficiently/overly diversified 

It’s no secret that running a concentrated portfolio can be a route to riches. The only condition is that these holdings all perform superbly (or you find the next Amazon or ASOS that can make up for the losers). That’s a big ask and, consequently, a high-risk strategy for most of us.

But while placing all your hopes in only two or three stocks isn’t part of the Foolish philosophy, there’s also no need to turn the active part of your portfolio into a quasi-tracker fund that has exposure to a huge number, either.

Studies show we only need roughly 20 company stocks to be sufficiently diversified. Any more than this and all we’re doing is increasing our costs.

3. Not using the right account

At the Fool, we bang on about how important it is for private investors to take advantage of tax-efficient accounts such as the Stocks and Shares ISA, the Lifetime ISA and the Self-Invested Personal Pension (SIPP).  

While differing in terms of how much you can contribute in any one tax year, and when you can get your money back, all of the above allow you to avoid paying any capital tax on your profits and any income tax on dividends you may receive.

The amount you’ll save will really add up over time and, thanks to compounding, could make a huge difference to when you achieve financial freedom. 

4. Ignoring inflation

While it’s never wrong to keep some cash on the sidelines to take advantage of inevitable market falls, holding a large amount is a huge mistake if you’re investing for the long term.

As long as interest rates remain below inflation, the latter will keep reducing the value of this money the longer it sits in your savings account. 

Far better to put any money you won’t need imminently into listed companies that not only grow in value but may also return cash to their owners in the form of dividends. 

The post Forget the next market crash. Here are 4 things to be more worried about appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This includes your ISA allowance, which stands at £20,000 for the 2018/19 tax year. Unlike some other allowances and reliefs, taxpayers cannot carry over any unused ISA allowances into the next tax year. It’s a use it or lose it benefit. And that also applies to the newly introduced Lifetime ISA, or LISA for short.

£1,000 a day

If you’ve not already used your LISA allowance for the 2018/19 tax year, now’s the time to do it because if you do, you could pick up an extra £1,000 for just a day’s work. 

There’s £1,000 of free cash lying on the table for any investors who contribute up to a maximum of £4,000 into there LISA today. But, I repeat, if you don’t take advantage of this offer today, you’ll lose it.

LISA’s are a relatively new financial products, and they’ve been slow to take off. This tax-free wrapper works similarly to the traditional ISA although there are some key differences. The biggest of these is the fact that you can only use LISA cash for two specific purposes, buying a property or saving for retirement. 

Only first-time buyers can use the cash to help with a deposit for a residential property. The other key difference between a LISA and traditional ISA is that the government adds a 25% bonus on every £1 you put in. So, if you max out the £4,000 limit, the government will contribute an extra £1,000 boosting your savings pot to £5,000. 

Even better, the same bonus is available every year so, if you open a LISA at age 18 and contribute to the full £4,000 every year, by age 50 (when the government stops contributing) the maximum bonus you will receive is £33,000 — who wouldn’t want £33,000 of free cash?

Outperforming the market 

Considering the fact that over the past few decades, the FTSE 100 has produced an average annual return for investors in the region of 8%, including dividends, an immediate 25% boost on your cash from the government makes a lot of financial sense. 

In fact, these numbers suggest you could beat the market even without investing if the government is contributing 25% a year.

Free cash 

So, that’s how you can pick up a free cash lump sum of £1,000 today with almost no effort on your part. The great news is, when the new tax year starts tomorrow, you can use the same benefit again, which means savers can pick up £2,000 worth of free cash over the next two days (there may be some delay before the bonus is paid). 

If you’ve not made the most of your LISA allowance for this tax year, what are you waiting for?

The post Use it or lose it. Your chance to pick up a free £1,000 ends today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Here’s a reminder of why all at the Fool hold this kind of account in such esteem and why we think every investor should be making the most of them.

Use it or lose it

Let’s start with the basics. The two versions of the account that are probably most relevant for readers are the standard Stocks and Shares ISA and the Lifetime ISA (LISA).

Both are tax-free wrappers. In other words, any profits you make or dividends you receive from the investments you own are protected from the taxman in either account. Buy a stock for £1,000, sell it for £2,000 and whatever’s left over after fees is yours.

There are, however, also some key differences between these accounts. 

The maximum amount you can pay into an ISA is £20,000 in any one year. This allowance runs until April 5 and can’t be carried over. Contributions to the LISA count towards this limit (as does anything you put in a Cash ISA) but are capped at £4,000.

The extent to which you can get to your money also differs.

While there are no restrictions when it comes to retrieving your cash from a normal ISA, you can only access the money in the LISA when you reach 60 years of age or earlier if you wish to fund the purchase of your first home.

Assuming you’re not a first-time buyer, the LISA is therefore only something to be considered if you can leave your money well alone. As an incentive, whatever you feed into to this account over the year entitles you to a 25% bonus from the government. So, paying in the full £4,000 gets you an extra £1000 to invest as you please. Cash out early and you’ll be hit with a 25% penalty. 

Taking all this into account, it’s not hard to see why having at least one of these accounts is a no-brainer for the vast majority of investors looking to accumulate wealth.

Another thing worth doing within your ISA or LISA is taking advantage of regular investing plans. Rather than invest a lump sum all in one go, it can be psychologically easier (although not necessarily more profitable) to invest a fixed amount each month. This allows you to buy more of a particular share or fund when the price is low and less when the price is high, thereby smoothing out your returns. 

Depending on your ISA or LISA provider, using a monthly investment plan can also reduce buying costs by as much as 90%! As many experienced investors will attest, keeping a lid on costs can be just as important as the investments you choose. 

Every little helps

Over a long enough timeline, the full benefits of the ISA allowance really become apparent. Assuming you are able to invest the maximum £20,000 per year (and for simplicity’s sake, assuming the allowance does not change over the years), you’d have almost £2m after 30 years, assuming a return of 7% per annum.

Of course, very few of us are able to make the maximum contribution every year (if ever). Nevertheless, the more you can stash away in either account, the more you’ll benefit from compounding over time. 

The post ISA deadline alert! Time is running out to make the most of your allowance appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Insist on better rates

Such derisory interest rates don’t keep up with the annual rate of inflation. You are almost certainly guaranteed to lose some of the spending power of your money at those low rates. Instead of increasing your wealth by saving, you would be reducing it if you use a cash ISA with a low interest rate.

There are better rates of interest available on cash savings accounts but they are not ISAs and the interest paid is subject to normal income tax rules, so some of it could be deducted to pay tax. If you are happy to tie up your money for a period of time, you could save it in Paragon Bank’s five-year bond account, for example, and get 2.5% AER. Another example is RCI Bank UK’s 2.36% if you commit to not touching your money for three years.

Those rates are better, but some of the banks and building societies offer Regular Savings Accounts and they pay the highest of all bank interest rates. Generally, you have to be an existing customer of the bank to open a Regular Savings Account and the amount you can pay in each month is limited. Examples include Nationwide, First Direct, HSBC and M&S Bank, which are all paying 5% AER on their Regular Savings Accounts for existing customers.

There’s nothing quite like these ISAs

You can get an even better return if you pay into a Help-to-Buy ISA or into a Lifetime ISA. There are rules regarding your age and what you can spend the money on when you eventually draw it out, but if you meet the criteria, the government will top up whatever you put in with an extra 25% of cash. On top of that, Help-to-Buy ISA providers also pay interest on the money you save, such as Barclays at 2.58% AER and Nationwide at 2.5%. So, the government pays you 25% once and then the ISA provider pays 2.58% or so every year on your money, on the money the government added to your account and on the interest from previous years. Help-to-Buy ISAs and Lifetime ISA are a ‘must’ in my view – it’s free money. Grab it while you can!

But the saving limit on Help-to-Buy ISAs will not take up your entire £20,000 annual ISA allowance, so I’d invest the rest in a share-based investment held within the ISA. You could invest in a low-cost, passive index tracker, a managed fund or pick shares yourself, perhaps guided by a share-picking service such as Share Adviser or Pro here at The Motley Fool.

The post The top cash ISA could be the biggest investing misstep you can make in 2019 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Imagine that, I almost ended up spending £120 for absolutely nothing, because the gas and electricity flowing into my home would be the same regardless of which company I paid for it. The energy company I was with had suddenly hiked the price, which is a habit many of them have adopted, so it pays to keep an eye on them. I used one of the comparison websites that are free to use, and the whole process took about 15 minutes of my time, which works out at a fine rate of pay, considering the saving I made – money which I can now use to boost my savings.

Trim your outgoings

You can boost your savings by trimming all your outgoings, such as telephone, internet, TV contracts, and insurance. It doesn’t take long each year to search for the best deals and to switch, and you could save hundreds. If you get into the habit of shopping wisely for groceries, clothing and other essentials, you could save hundreds more.

Save something every month

By developing a regular savings habit, you can really start to build up your savings pot. But where should you put it? Some of the best rates of interest around are available with current accounts such as the TSB Classic Plus account, which pays you interest at 5% annual equivalent rate (AER) on balances up to £1,500. Then there’s the Nationwide Flex Direct account, which pays 5% AER on balances up to £2,500 for the first year, before dropping to 1% (at which point you could switch accounts again to something better).

My Foolish colleague Edward Sheldon recently punched out an article setting out the pros and cons of other types of higher interest savings accounts and fixed-term savings accounts, which are available too.

Invest in a Lifetime ISA (LISA)

If you fit the age limitations the Lifetime ISA (LISA), it strikes me as a bit of a no-brainer because the state will add a 25% bonus on top of what you put in. So, if you save £1,000 per year, you’ll have £1,250. And if you save the full £4,000 per year that you are allowed to save under the scheme, you’ll have £5,000 – plus all the interest, capital gains and share dividends you accumulate over time.

The LISA is a tax-free wrapper that allows you to save cash to earn interest, or to invest in shares on the stock market. But the money must be used to buy your first home, or to use when you retire. The great thing is, if you save your full allowance into a LISA every year, you’ll still have a £16,000 allowance in an ordinary ISA each year to use up on top.

Invest in an index tracker fund

Finally, I reckon one of the best investments you can make is to drip regular money into a tracker fund that follows the FTSE 100 index, or perhaps the FTSE All Share index. The great thing is you can do that within your LISA or ISA tax wrapper.

The post 5 ways to boost your savings forever appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.