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Half of Lifetime ISA investors are staying in cash

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27/09/2017
Almost half of Lifetime ISAs remain in cash, earning little or no interest, according to analysis from AJ Bell.

Its research found 46% of AJ Bell’s Lifetime ISA (LISA) customers have not yet invested their money, preferring to hold it in cash. Tom Selby, senior analyst at AJ Bell, said the group’s LISA investors were cautious on stock markets at or near all-time highs. The average amount invested in an AJ Bell LISA is £2,520.

Selby said remaining in cash makes sense for first-time buyers who may need access to their cash at short notice, and added: “The last thing a house buyer needs is for the value of their investment to fall at the point they need it for a deposit.”

However, the group’s statistics showed 66% of investors are over 30 and 45% are aged 36-40. As such, they are more likely to be saving for retirement. Selby said: “Those using their LISA to save for retirement may be opting to wait for a market fall before choosing to invest. However, for these people, timing the market can be difficult, so deciding when to take the plunge is a big decision. Investing for the long-term means they have time to ride out any short-term market volatility and if they are concerned about immediate market falls they could consider drip feeding their money into the market over the next year.”

“It’s also important not to forget that cash still carries risk. In the long run, inflation will erode the purchasing power of cash and investors will miss out on the magic of pot-boosting compound returns.”

Of those who have invested, passive investments proved more popular, making up six out of the top ten most popular investments. Selby said this suggests investors are looking for low-cost, off the shelf, solutions to access markets. Of the active funds, Fundsmith Equity and Baillie Gifford Managed funds proved popular.

YourMoney.com research earlier this year revealed that two of the four investment LISA providers pay the government bonus into a cash version of the product, meaning investors could miss out on significant returns unless they actively re-invest their money. See Investment LISA savers warned bonus may idle in zero-return cash account for more information.

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