Further to our recent discussions, we now have £180,000
available to invest. We would like to achieve a better return than is
currently available in the bank and building society but without the
risk of investing directly into stocks and shares. My wife has a
small pension in her own name but, apart from that, the rest of our
pension income is in my name.
We would like to keep a good chunk of the cash accessible so could
you advise us how wemight invest the capital to generate a lowto
At our last meeting, we discussed in detail the various options
available to you, particularly with regard to risk and reward. You
made it quite clear that you are averse to direct investment in
equities and that you are not prepared to see your money fluctuate
wildly in line with the equity markets.
However, you acknowledged that some risk is required in order to
achieve better returns. I would therefore suggest the following.
You should keep £70,000 in a building-society postal account in
your wife's name. This will generate an income of 4.3 per cent gross
and will utilise most of your wife's remaining personal tax
allowance. It will also provide you with a substantial cash reserve
that you can access for opportunities and emergencies. However, you
need to be aware that there will be no opportunity for capital growth
with such deposit-based funds.
I would then normally suggest some investment into equities for their
long-term growth capability but you have lost money in the past with
equity investments and would prefer to avoid them.
I would therefore recommend investing £40,000 in funds spread
equally among gilts and corporate bonds via the Norwich Union
portfolio bond. Gilts, in the short term, are still being used as a
safe haven in the uncertain environment although, looking forward,
the growing budget deficit will become a strong adverse influence.
However, gilts are still expected to better building-society returns
and have the security of being backed by the Government.
Bonds have outperformed equities over the last 10 years. Questions
are beginning to emerge about whether the bond market could be the
next bubble to burst but bonds are a core asset class. There will be
a greater use of bonds by pension fund trustees to immunise
portfolios from losses in the future.
The losses of recent years have increased the pressure on corporate
balance sheets and so corporate bonds should continue to offer the
potential for reasonable returns. You should be able to draw an
income of about 4 per cent net of basic-rate tax with some chance of
Then I would invest £30,000 into the Scottish Widows flexible
bond. The with-profits income fund currently pays a regular bonus of
4.5 per cent a year. This is a more modern and transparent
with-profits fund with no exposure to equities. The core assets are
invested in fixed-interest bonds and property, so the bond will again
offer the chance of a decent low-risk income.
Half the core assets will be invested in lower-risk fixed-interest
bonds issued by companies with investment-grade credit and the rest
of the core assets will be invested in assets with potentially higher
returns but higher risk such as other fixed-interest bonds and
property. As basic-rate taxpayers, you will receive the income with
no more tax to pay.
For the balance of £40,000, I would recommend an investment
into the Gold 5 ING UK Property Income Limited Partnership issued by
Pinder Fry and Benjamin. This is an opportunity to invest in an
existing commercial property portfolio managed by one of the top UK
property fund managers. The investment will be into a limited
partnership owning an existing portfolio of UK commercial property of
institutional quality totalling 22 properties spanning the retail,
office, retail warehouse and industrial sectors.
With a term of seven to nine years, the expected income is 8 to 9 per
cent a year. The portfolio has a low tenant risk profile and so
offers the potential for a high income with low to medium risk. There
may be a slight potential for an increase in the capital value
through active management.
Please note, the real benefit of these investments will be seen over
the longer term and their values will still fluctuate on a day-to-day
basis but without the risk and volatility of direct equity