partner and I each have £100,000 to invest...BUT WHERE?

snikta

My partner and I have decided to take early retirement, we've bought a motorhome and plan to travel this country and europe. After selling his business and my house we have approx £100.000 each to invest. We need to live off the interest as we have no other income, so monthly interest is a must.

Any advice would be much appreciated.

Thanks Snik

dunstonh

Pensions, ISAs, Unit Trusts/OEICs, Investment Bonds could all be applicable and each has its pros and cons depending on yoUur views.

It is impossible to recommend one of those without knowing your details and that just isnt possible on a forum.

Pensions would provide the greatest income (asumming age is above 60). You wont be able to put a lot in this year, assuming you have no net relevent earnings this tax year. However, the pension income can equate to around 10% of the contribution. Income would be taxable.

ISAs investing in funds which provide an income can produce around 5 to 7% p.a. and these have no tax liability. There will be some income volatility but there are a number of providers that allow a fixed monthly withdrawal. Cash ISAs offer some potential as well. However, the income from these is potentially lower over a longer period (interest rates go up and down. They are up at the moment and long term is down albeit with one more potential rise before they level out and drop).

Investment Bonds are tax paid but income from these (treated as a withdrawal rather than income) does not affect your age allowance. There is a massive range of funds available. Nowadays, the same funds you see in ISAs/Unit Trusts/Oeics appear in the investment bond range.

With Profits Bonds are same as above but in a smoothed return. At this time there are only really two providers to consider. Norwich Union and Prudential. Norwich Union has the better guarantees and their current bonus' are in excess of 5% and you can get over 5% initial bonus on investment giving you a year one of 10%. NU have a 5 year and 10 year exit point with no charges or penalties of any sort. Pru has better return potential but no guaranteed point where you can withdraw the money with no penalties (there is a few bits extra there but not going to elaborate).

Unit Trusts/OEICS. Income from these is taxable and can impact on the age allowance. However, if age allowance deducations are not applicable, than these are better than investment bonds from a taxation point of view. Low risk funds like corporate bonds, gilts, fixed interest and commercial property are all available and can be used for income purposes. Fixed monthly withdrawals are available with some providers.

There are providers who give guaranteed return of capital (minus withdrawals) on death with ISAs, Unit Trusts and OEICS so if the intention is to hold on to these for the rest of your life, then capital security shouldnt be a concern for you if you choose one of these providers.

Bank accounts should maintain an emergency fund and although rates are pretty good at the moment, the long term move is downwards. Plus the interest paid can reduce your age allowance.

EdInvestor

Hi Snik

snikta wrote:

My partner and I have decided to take early retirement, we've bought a motorhome and plan to travel this country and europe. After selling his business and my house we have approx £100.000 each to invest. We need to live off the interest as we have no other income, so monthly interest is a must.Snik

I assume you need to hang onto this capital, because you might need to buy another home later on when you get too old to travel, so to speak? So you can't take much risk with it, if any?Also assuming you will have some pension income kicking in later as well?

Basically, if you need to keep the capital safe, you can't expect to take more than 5% income pa from it, that's 5k each - can you live on that?

Start with cash: you need three separate providers to make sure your money is totally safe (ie you would get compensation if anything happened to the bank). Put as much as possible in an ISA, so the income is tax free, you'll pay 20% tax on the interest but can probably claim it back if you're not earning (fill in a form at the bsoc/bank.)

If you can take a bit more risk, then you could consider a commercial property unit trust/OEIC which could give an annual yield of 6-7%.Again, in an ISA is probably best to stay flexible as you don't know how long you will be touring around.

Do you need, can you handle, a bit more risk for better returns? If so I'll recommend an equity fund with a long history of high returns and a monthly income: that's Invesco Perpetual's Higher Income fund managed by Neil Woodford. Buy it through a discount broker like Cavendish (which has an arrangement with MSE), so you get any initial charges rebated to you.You may be able to get double digit returns from this fund.

You could spread your money around among these three asset classes - cash, commercial property, equity income, putting all eggs in one basket is not usually a good thing, though cash is safe of course. A couple of years worth of living expenses in a high interest instant access cash account would be a must.

I feel corporate bond funds are a bad buy at present because the market is thought to be at a peak and values may fall.I don't like the high charges on insurance bonds.

A Nationwide credit card is good to have if you're travelling as they don't charge extra for foreign currency spending.

If you are travelling, being able to access all your cash and investments online may be important. Fortunately some of the best deals are the online ones.