Jasmine Pelham, who is in her mid 20s, has been maximising payments into her a Lifetime ISA to help save for a deposit on her first house.
She has been trying to invest the maximum £4,000 into the Lisa at the start of every tax year. This means she qualifies for the full 25% government bonus — which boosts her investment by a further £1,000. She also diverts money into a Stocks & Shares ISA, a pension and a ‘holiday’ fund, what she calls a “jam jar” approach to her finances.
With Lisas there is the option to either save in cash, or to invest in the stock market. The money can be used towards a first house purchase, or saved towards retirement.
Jas says: “When I took out the account I was looking to save over a five year period, so this seemed a reasonable time frame to look at the stock market.”
She is optimistic that her and her partner may be able to afford to get on the housing ladder within the next two years. “It was a bit alarming when the stock market fell at the start of the Covid lockdown, but while the value of my investments dipped initially they have recovered well since then.”
She had hoped to take full advantage of the Government’s stamp duty holiday, but the couple have decided to wait for the time being until they have a larger deposit to put down.
“There seems to be a mad rush to buy and this has driven prices up. As a first time buyer, there was some stamp duty concession anyway so I am going to wait and see if the market settles and there is a little more choice.”
Her Stocks & Shares ISA is designated as longer-term savings to complement her pension in retirement.” But she also puts money into some shorter-term cash savings. “These are for holidays and also to tide me over at any time. Although I’ve continued to work during the coronavirus pandemic, a lot of my friends have lost their jobs or have been on reduced furlough pay. It certainly has highlighted the need to have a decent rainy day fund to fall back on.”
Jas, who works in the HR department for a bank, says her father encouraged her to invest in the first place. “My parents opened a Junior ISA for me, and once I went to university it was transferred to my name. Part of my course was in economics so I also used to regularly read the Financial Times and so got interested in investing in shares at that time.”
Better Returns from Funds
Jas invests in a range of individual shareholdings and funds. In recent years though she says she has shifted to have a higher weighting in funds, as these have given her better returns.
“I have investment in a number of UK blue chip companies, but the performance has not always been great. For example one of the first shares I bought was Vodafone, which I still have in my stocks and shares ISA.”
She says that while the dividends paid in recent years have been good, the share price has been disappointing. According to Morningstar data, investors have seen total annualised losses of 3.14% over the past five years, and annualised losses of 5.74% over three years.
However the share price has rallied somewhat in over the past 12 months, although it is still below the price it was trading at between 2014 and 2018.
Morningstar analysts point out that Vodafone (VOD) has steadily transformed its business in recent years. They say: “Overall, we believe Vodafone holds a solid set of assets, with opportunities to grow cash flow.”
Other blue chip holdings have fared slightly better. Jas also has holdings in Tesco (TSCO) and the construction company Persimmon (PSN). The supermarket giant has delivered positive returns to shareholders in recent years, although its share price fell back at the start of 2021 after strong share price growth last year. Over three years investors have seen annualised returns of 5.28%, comfortably outperforming the FTSE100 according to Morningstar.
Persimmon has delivered strong growth for investors, fuelled in part by rising house prices, which have made it difficult for some first-time buyers like Jasmine. According to Morningstar data investors have seen annualised returns of 12.52% over three years and 12.88% over five years.
Cost, Track Record and Diversification
When choosing funds, Jas looks at a number of factors. “I think its important to keep fees low, and for this reason I also invest in a number of ETFs and passive funds. But I will pay a slightly higher fee if the fund managers has a good long-term track record.”
This has led her to invest in a couple of investment trusts, such as Scottish Mortgage (SMT) and Finsbury Growth and Income (FGT) – both of which have delivered high returns to investors over the past 10 years. “This strategy of paying more certainly seems to have delivered in this case,” she says.
She tries to diversify her portfolio across different asset classes, regions and sectors, and funds help her do this more effectively.
“My pension money tends to be invested in slightly more adventurous funds. But I’ve stuck with a more moderate level of risk with my Lisa money as I might need it sooner.”
This includes funds like the Silver-rated Fidelity Global Dividend. “This is a large cap fund, that is focused on mature companies paying decent dividends. It feels less risky than investing in smaller companies or specific areas such as technology, or emerging markets.”
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