My wife and I have just retired with good occupational pensions. Having both worked hard all our lives, we intend to spend the first five years sailing around the world.
We have £100,000 to invest to buy a home when we return, in addition to the proceeds from the sale of our boat. We would like to get as much growth as possible to combat house price inflation, while guaranteeing our capital 100 per cent. What do you recommend?
There are a number of issues to consider here. Most important, you need to think about what might happen at the end of your five years' travelling.
You may decide you would like to continue travelling or perhaps settle somewhere abroad. Alternatively, you may simply want to return to the UK as planned.
To keep your options open, you need to retain control of your capital. First, it should be accessible at the end of your planned travel period so any investment should have a five-year horizon. Second, while you want as high an income as possible now, you also want to keep your capital intact.
Tax planning will be key to your investment strategy. You want to maximise the amount of tax-free growth while minimising your tax liabilities when you return.
In addition to maximising your current Isa limits, I would strongly suggest you look at investing in a guaranteed offshore bond. These bonds run for a set period of time, typically, between one and five years. In some cases, the income level is fixed throughout while the capital return is linked to a stockmarket index.
As you want a 100 per cent guarantee, you should check the small print of some of the products on the market. Recently, the general format has been that capital will be returned in full only if the index does not at any time fall by more than a set percentage. In such an instance, the capital return will be reduced according to a pre-set formula. You should be looking at a bond where 100 per cent of the capital is guaranteed. Also, I suggest you look for a product where any gains made may be locked in at a given point in the life of the bond, thereby protecting the investor from a fall in the index right at the end of the life of the bond.
In general, when selecting a bond, there are four main factors to consider:
Past performance of index.
Of the bonds available at present, the product which seems to best combine the 100 per cent capital guarantee you require with good returns is the Inora Offshore Generation Bond. Inora is a new life company launched recently by Soci…t… G…n…rale.
The bond offers investors exposure to gains of up to 110 per cent in the Nasdaq 100 index over five-and-a-half years while protecting 100 per cent of their capital and providing a minimum return of 20 per cent.
The term is divided into 11 six-month periods. At the end of any six-month period, any gains up to 10 per cent or losses made by the Nasdaq 100 index are recorded. At the end of the five-and-a-half years, the returns from all the six-month periods are added together to give the final return.
Furthermore, gains can be locked in after four years. If returns at that time (calculated as above) exceed the 20 per cent minimum return, the gains to date are protected and become the minimum returned at the end of the five-and-a-half years.
Inora's offshore status means the fund grows without the deduction of UK taxes, which are levied on onshore bonds. Gains made within the bond remain tax-sheltered while the money remains offshore. Should you decide to stay on a tropical island rather
than return to the UK's damp weather, all the proceeds from the Inora bond would remain tax-free.