I’m a big believer in the merits of the Lifetime ISA (LISA). Each new financial year, my top priority is making sure I use the full £4,000 contribution limit.
The next question is which stocks to buy. And unlike my other investing, there’s typically only one company on my list when it comes to my LISA.
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Outperforming the market
Beating the stock market over a long period’s extremely difficult. But investing using a Lifetime ISA gives me a big advantage that I think changes the equation in my favour.
Whenever I add cash to my ISA, I receive a 25% boost from the government. So if I deposit the full £4,000 in a year, I get a total of £5,000 to invest.
As a result, if I can do better than 75% of the overall market’s return, I’ll achieve a better end result than if I’d invested £4,000 in an index fund. And this changes how I think about what to buy.
When I buy shares using my LISA, I’m looking to keep my risk lower than I would elsewhere. And that points me firmly in the direction of one particular stock.
Berkshire Hathaway
As billionaire investor Warren Buffett notes, the way Berkshire Hathaway‘s (NYSE:BRK.B) run makes it unlikely to be the top-performing stock in any given year. But it’s also extremely unlikely to do badly.
The company owns a diversified portfolio of businesses, including a railroad and a utilities operation. Many of these are limited by regulation, but their cash flows are highly predictable as a result.
Berkshire’s insurance operations expose it to a risk of significant losses in the event of a natural disaster. But the excess cash on the firm’s balance sheet puts it in a stronger position than its rivals.
I think this makes Buffett’s company the perfect stock to buy in my Lifetime ISA. If I had to predict one company to generate solid returns consistently for the next 30 years, it would be this one.
Diversification
Ordinarily, I’d look to diversify my investments to try and limit the damage to my portfolio if anything goes wrong with one particular company. But I’m focusing on Berkshire in my Lifetime ISA.
There are a couple of things to note though. One is Berkshire’s shares bring a degree of inbuilt diversification with its insurance, railroad, and utilities subsidiaries part of a much bigger picture.
Another is that my LISA is only part of my overall portfolio. In my regular Stocks and Shares ISA I own other stocks and this goes some way towards diversifying my investments as a whole.
Berkshire Hathaway however, has an unusual set of advantages over other companies. And the fact it doesn’t pay a dividend – and I don’t expect it to – makes it a natural choice to use in my LISA.
Cashing out
The last point’s important. I can’t easily withdraw cash from my LISA until I retire, so aiming for passive income to boost my buying power next year isn’t a realistic option.
Instead, I concentrate on buying shares in companies I think are most likely to do well over time. And, realistically, that means Berkshire Hathaway.
