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Where should my 20 year old son invest?

R | Greater London| 29/05/2018 | 1

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R's question in full

I am very keen to introduce my 20 year old son to funds and the potential that they can offer over the long term, he is only 20 but I have managed to get him to start investing with Nutmeg; he has a LISA and a Robot savings account. He’s paying £100 a month into the LISA and £50 a month into the savings account. I read Holly's piece in the Sunday Times and was reassured that I have monies in all the funds that she recommended. I am thinking of suggesting to [my son] to open up a Vanguard 100 % Equity and a Lindsell Global Equity Fund and drip feed monies in each month with a 'DD'. I use H&L and although they are a bit 'plumy' on the phone I quite like their website and the costs are OK. So I was thinking of H&L for [my son]. I would be telling him to open these two funds and regularly invest and forget about them for 10 years !

Holly Mackay's Response

The first thing to make clear is that I am not regulated to give financial advice. And I don’t know your full circumstances. This means you have no recourse if I tell you things which lead to poor outcomes and you have no comeback. And if your son is carrying expensive debt for example then investing is a bad idea……you get the picture. So with all that in mind – here is what I would say if it were a cousin of mine. Happy to help but important to set the scene!

 

Right.

 

He could just put it all into the Nutmeg LISA- -but he does have to be very sure that he will buy a house. Or we won’t need it till he retires! So it’s a bit of a risk to put all his eggs into this basket at such as young age.

However if he is dead set on buying a house, paying more into his existing LISA makes sense as he’ll get the Government top ups too.

If he isn’t sure then he can keep paying the £100 into the LISA and pay the other £50 a month into an ISA as he is, which gives him access to the more flexible robo savings if he needs them. But again – that £100 a month has to be for a first property OR retirement.

You have identified an allocation of £25 a month to the Vanguard and £25 to Lindsell Train Global Equity.  I think both are strong options.

Fees are a thing to watch. Given that he will ‘set and forget’ I would suggest he uses Charles Stanley not Hargreaves. They are not as good overall IMHO BUT he will pay 0.25% not 0.45%. And they are certainly good enough! He can buy these two funds here. If you prefer to stick with the service you know, Hargreaves are great and the service is very good and they are a FTSE 100 company. So as strong as they come. This is your choice to make.

The final thing I’d say is that the Vanguard fund has professionals looking over it and constantly tweaking and adjusting. So you can truly set and forget. With the Lindsell Train fund, you need to check in every 6 months to 1 year to make sure that they haven’t lost their way. A simple way of doing this is to leave this to the experts – and check that it remains on the Hargreaves Lansdown preferred funds list (or any other platform’s preferred funds lists). If it heads South, they will remove it. I personally like the fund and I rate it – but things change so with this option you do need to keep an eye on it. An alternative is to see how it is doing compared to the average or index but this can be difficult to assess as ‘underperforming’ for 6 months or so doesn’t always mean a rushed decision to sell up is the right one. These are long-term plays.

Once he has more than £500 saved he could always just open up an ISA with Vanguard directly and save the whole £50 a month here. It would be easier and the overall costs would be lower. You remove the potential outperformance of the Lindsell Train fund BUT you get simplicity, and also remove the risk of a more expensive fund underperforming. So that’s a choice he’ll have to make – the certainty of lower fees and average performance against the potential for higher performance alongside the risk of paying more for duff performance.

Our Expert

Holly Mackay

Holly Mackay

Founder and MD Holly Mackay has been working in the investments space since 1998. She read Modern Languages at Oxford, with a special focus on Mediaeval French which was deeply interesting and arguably utterly useless.

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