Hi, I would like to advise my millennial kids where to invest their pot of savings (they already have an emergency fund and a pension) for buying a house in 7 to 8 years time. I thought of investing in a Vanguard Target Date Fund (or a lifestyle fund, which would allow them to select the fixed/equity ratio), with a view to perhaps encashing it 5 years before they need the money to avoid additional risk. The alternative, ie keeping the money in cash for 7 to 8 years, also seems risky and a wasted opportunity. Any thoughts or advice? Thank you, Mark
Timing is so difficult to call at the moment isn’t it? But like you I agree that 7-8 years in cash feels pointless with interest rates so low.
The first point I’d make is on the tax wrapper. If they are first time buyers then please read up on the Lifetime ISA. You can pay in up to £4,000 a year and the Government will top this up with another £1,000. SO that’s a 25% return. Not bad. You can get a cash Lifetime ISA or a stocks and shares one from providers like Hargreaves Lansdown, AJ Bell Youinvest (Pick n Mix) or Nutmeg (if they want a ready-made one).
Then it’s the cash or shares question. 7-8 years is tough . 10 years plus and I’d always go for shares. I probably would with 7-8 years but everything is so mad at the moment it’s hard to know which way is up. On balance I suggest a ready-made Lifetime ISA – with a decent % allocation in shares – and then just keep an eye on it 2, 3 and 4 years out and plan to move to cash when things are relatively strong (fingers crossed). If they have the savings they should consider drip-feeding £4k into the LISA every year to get that Government top-up.
This means having an ISA for any surplus initially makes sense – and they may as well pick a platform which has both shares ISAs and shares LISAs for ease. So look at the 3 named above. A Vanguard LifeStrategy fund on AJ Bell Youinvest would be the cheapest option (if you/your kids are happy with this ‘passive’ fund option). I think keeping it relatively simple with Lifetime ISAs and keeping an eye on the clock a few years before you need it makes perfect sense.
P.S. Warning – if they change their minds and don’t use the savings for a first property OR retirement, there is a nasty penalty so they need to be sure they will buy a property at some point.