In the post-financial crisis era it has become a lot harder for young people to get on the property ladder, due in part to banks’ stricter lending criteria and the need for first-time buyers to accrue ever higher deposits.
Having begun saving for a deposit for a home, I decided to open a Lifetime Individual Savings Account (LISA) – the government’s latest scheme aimed at helping people save towards a first home or retirement.
Savers are able to put away up to £4,000 per year into the scheme with the government adding an extra 25 per cent.
Transferring some of my cash savings into an investment platform account last year made me suddenly realise I had a lot more cash that I could be putting to work.
I’m quite aware that investing is a long-term process and my investments have been modest: most of my portfolio is cash.
However, I’m also aware that my LISA is unlikely to grow much if it remains held in cash.
As such, I began making smaller investments in a handful of funds that I thought might be able to help me towards my goal of one day owning a home.
I’ve made some investment rules to stick by, have set my own targets and I should reiterate that the vast majority of my LISA is held in cash.
It should be further noted that while I have made investments based upon my own investment time horizon, some of the strategies listed below may have longer-recommended time frames.
Below, I highlight two of the funds I’ve added to my small portfolio and also speak with some industry experts about what the right thing to do with a LISA is.
Vanguard LifeStrategy 80% Equity
One of the holdings I’ve held for the longest is index-tracking multi-asset fund Vanguard LifeStrategy 80% Equity.
The five FE Crown-rated passive fund invests across a range of other Vanguard index-tracking products. It aims to provide exposure to a portfolio of 80 per cent to equities and 20 per cent to fixed income.
The £2bn fund is part of the passive manager’s LifeStrategy range, which has proved popular with advisers thanks to its low management charges of 0.22 per cent and automatically rebalanced asset allocation.
Performance of fund vs sector over 1yr
Source: FE Analytics
Over one year the fund has delivered a total return of 6.69 per cent compared with a 4.63 per cent gain for the average IA Mixed Investment 40-85% Shares member.
Top fund holdings include Vanguard FTSE Developed World ex UK Equity Index and Vanguard U.S. Equity Index, each of which represent 19.2 per cent of the portfolio.
Other top holdings include Vanguard FTSE U.K. All Share Index (18.3 per cent) and Vanguard Global Bond Index (13.9 per cent).
However, this is a higher risk product and, as such, has a longer-term time frame.
Standard Life Investments Global Smaller Companies
Again, this is a higher risk strategy focusing on smaller companies through a high conviction and concentrated portfolio of around 50 stocks, albeit with a more geographically diverse remit than some other strategies.
Indeed, the asset manager notes in its key investor information document (KIID) that this fund may not be suitable for investors who plan to withdraw money within five years.
At the time of selecting the five FE Crown-rated fund it had ticked a number of boxes over a three-year time frame such as top quartile figures for volatility, maximum drawdown (the most lost if bought and sold at the worst possible times) and Sharpe ratio (showing risk-adjusted returns).
Finally, manager Alan Rowsell had built a strong track record since taking over management of the strategy. As noted last year, the fund had delivered a top quartile return in every year bar 2014 and even outperformed in 2016 when the growth style of investing was out of favour.
Performance of fund vs sector YTD
Source: FE Analytics
So far this year, the five FE Crown-rated fund has delivered a total return of 14.29 per cent compared with a 3.23 per cent gain for its average IA Global peer.
Analysts at Square Mile Investment Consulting & Research noted: “We would expect its quality growth bias to add value for investors over the long term and help minimise losses when investor sentiment turns sour; though there will be undoubtedly times when it struggles for example, when its investment style falls out of favour or at market inflection points.”
Standard Life Investments Global Smaller Companies has an OCF of 1.06 per cent
And what the experts say
Chelsea Financial Services managing director Darius McDermott said those looking to withdraw money within the next few years should not be investing in funds.
Patrick Connolly, head of communications at Chase de Vere, (pictured) agreed, noting that the government bonus in itself is the best value that can be added in the short term. 
“The Lifetime ISA should be an excellent product for many people trying to get on the housing ladder,” he said. “If you’re looking to buy after 12 months the right investment approach will depend on your attitude to risk and the time horizon you’re looking at.
“If you’re looking at two to three years, I would agree that you’ve done it wrong and should be sticking to cash, especially when investing now when stock markets have been on a very strong run for the past nine years.”
Indeed, since the global credit crisis markets have rallied as central banks have lowered interest rates to record lows and embarked upon unprecedented quantitative easing (QE) programmes to help stimulate economic growth.
As such, investors have sought higher returns than are offer from lower risk assets helping to fuel a post-crisis bull run, which has continued to boost markets.
Performance of indices over 9yrs
Source: FE Analytics
Over the past nine years the S&P 500 index has delivered a total return of 301.29 per cent, while the MSCI World index is up by 211.85 per cent. Closer to home, the FTSE All Share index has delivered a 156.68 per cent gain since June 2009.
With such strong growth and with a number of macroeconomic headwinds, it remains to be seen how much further growth remains in markets.
Connolly added: “As a broad rule if your time horizon is less than five years you should hold cash, if five to 10 years multi-asset and for 10 years and beyond equities.”
As such, the main thing I’m doing wrong with my LISA – if I hope to get on the housing ladder any time soon – has been to invest it.