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Why I think it’s a great time to invest in a Lifetime ISA

The Lifetime ISA, which is open to those aged between 18 and 40, is an extremely powerful long-term investment vehicle. Not only does it enable those saving for retirement to shelter their money from the taxman like other ISAs, but it also comes with 25% bonuses on contributions up to the annual allowance of £4,000 (up to age 50). This means that you can potentially pick up bonus savings of up to £1,000 per year, for free.

In the current financial environment, that risk-free 25% bonus could be a huge financial advantage. Put that bonus money to work now, while the stock market is depressed, and the results could be incredible in the long run.

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Buying opportunities

The recent stock market crash has thrown up some amazing opportunities for long-term investors. Whether you’re investing for dividends or growth, there are some bargains on offer.

Take alcoholic drinks champion Diageo – which owns a number of top brands including Johnnie Walker, Tanqueray, and Smirnoff – for example. A little over a month ago, it was trading at 3,200p on a P/E ratio of nearly 25 with a yield of 2.1%. Now, however, the shares can be bought for around 2,400p which equates to a P/E of 18 and a yield of 2.9%. I think that’s a steal, given the company’s track record and long-term growth prospects.

Another example of a stock that looks attractively priced right now, to my mind, is JD Sports Fashion. Its share price has fallen from around 880p to under 300p over the last month. That means its P/E ratio has dropped from around 30 to just 11. I see that as a bargain. 

These are just a few examples of the opportunities available to investors right now. There are plenty more. For this reason, I think it’s a great time to be drip-feeding money into the market.

25% more buying power

Now, going back to the Lifetime ISA, the advantage of investing within this account, as opposed to a regular trading account or a Stocks and Shares ISA, is that you’ll have 25% more buying power. That could make a big difference to your wealth over time.

For example, let’s say you have £2,000 to invest in shares right now. If you invest within a Lifetime ISA, your £2,000 will be automatically boosted to £2,500. Now, let’s say your shares rise by 50% over the next two years as the stock market recovers from its recent crash. This means your £2,500 investment would be worth £3,750. That’s £750 more than it would be worth had you just simply invested your £2,000 in a regular trading account. That’s the power of the Lifetime ISA. That 25% bonus can very be powerful.

I’ll point out that the Lifetime ISA does have some restrictions to be aware of. This ISA isn’t as flexible as other ISAs. Yet in my view, the 25% bonus outweighs the restrictions. If you’re investing for retirement, I think it’s a great account to use.

5 steps that can help you to stay calm and invest on – whenever stock markets panic…

It’s ugly out there…

The threat posed by the coronavirus outbreak has spooked global markets, sending stock prices reeling.

And with the Covid-19 virus now beginning to spread beyond of China and Italy, it seems very likely that the bull market we’ve enjoyed over the past decade could finally be coming to an end.

Against such a backdrop of market worry, it’s little wonder that many investors are starting to panic. (After all, nobody likes to see the value of their portfolio fall significantly in such a short space of time.)

Fortunately, The Motley Fool is here to help, and you don’t have to face this alone…

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Edward Sheldon owns shares in Diageo and JD Sports Fashion. The Motley Fool UK has recommended Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.