The Lifetime ISA (LISA) has been steadily growing in popularity over the last few years and it’s not hard to see why. This account — available to those aged between 18 and 39 — allows holders to put £4,000 of savings in every year. The UK government then pays a bonus of 25% on whatever is stashed away (so, up to £1,000).
While the LISA can be a great way of saving for a first home, my priority is growing my retirement savings via growth-focused stocks and funds. After all, any capital gains made via investments are tax-free. One example of the latter I’ve started building a position in this month is Marlborough Nano-Cap Growth.
My latest LISA buy
Nano-Cap aims is to increase investors’ capital by more than the FTSE SmallCap Index (ex-Investment Companies) through buying the best of the UK’s listed minnows. At the time of writing, these include software business IQGeo, metal recovery business Jubilee Metals, and leak fixer Water Intelligence.
In terms of sector breakdown, the Nano-Cap Growth fund has almost 30% of assets invested in tech businesses. This shouldn’t come as a surprise considering the fund’s growth-focused approach. Collectively, Industrials and Consumer Discretionary companies make up another 30%. However, just 3% is invested in ‘Steady Eddie’ Consumer Staples.
So, why pick this fund for my Lifetime ISA over others?
Well, the long-term performance has been great. According to Trustnet, the fund has delivered a 179% return since August 2016. Its benchmark has ‘only’ doubled in the same five-year period. This ranks Marlborough Nano-Cap Growth second out of a field of 45 funds dedicated to this part of the market.
Comparing this to the derisory performance of the FTSE 100 (up 4%) also helps explain why I definitely want some exposure to small-cap stocks in my LISA. Consider the gains I could make if I held this for 10, 15, or even 20 years!
Of course, the pursuit of higher returns comes at a cost. As experienced Fools will know (and newbies quickly discover), market minnows can soar in value on just a bit of news. Unfortunately, the opposite is equally true.
Yes, the diversification offered by the fund gives some protection. However, a rollercoaster ride is still quite possible.
This specific fund might also underperform. In fact, Nano-Cap Growth has returned 6% less than its benchmark over the last six months.
Obviously, judging form on such a short period makes little sense. Nevertheless, it’s important for me to keep track of how things are going to make sure the fees I’m paying to hold this in my Lifetime ISA are still worth it.
Ah, yes, fees. To be frank, the 0.67% ongoing charge I’m paying via my broker isn’t that high for a specialised fund. That said, it’s still a lot more than I’m paying for a passive Vanguard small-cap fund I hold in another account. Picking my own stocks (which I also do) would avoid these charges completely.
Buying Nano-Cap Growth for my Lifetime ISA now may not turn out to be one of my better decisions, at least in the short term. Since I’m terrible at timing the market, I know it’s better to be invested than not.
The key to successful investment returns isn’t so much about what you do, it’s about sitting tight and not doing anything!