Yahoo Finance 'Where should I invest £120,000 for my grandchildren?'
Even investors with a lifetime of experience need a second opinion before making big decisions. Godfrey Rydon, aged 78, has been managing his own money for 50 years but is anxious about inflation and interest rates as he weighs up where to invest £120,000.
“I’ve got a large chunk of money sitting in a savings account that I want to put to work. Although there is a good chance that I need to draw on £90,000 in the next two years to pay for my grandchildren’s university education, I still want it in the market as I have other money I can tap into and a good final salary pension,” Mr Rydon, a retired British Airways captain from Hampshire, said.
A lifelong fan of investment trusts, he wants suggestions of funds that will protect his money but also grow steadily outpacing inflation while generating an income.
“While I know I may need to spend the money soon, I’d still like to invest in the stock market, albeit in a defensive way. I understand there is always risk any investment can go to zero,” he said.
Mick Gilligan, partner at Killik & Co, said:
Mr Rydon should be cautious about stock markets as inflation and interest rates rise. “Capital preservation” trusts, which have a low correlation to stock markets, should make up 75pc of his new investment.
Two of my favourites are Personal Assets Trust and Capital Gearing. They can invest anywhere, including bonds, to protect investors’ money.
One trust he should buy that protects money but still generate an income is Twenty Four Income Fund. It holds a portfolio of “floating rate bonds”, whose income is typically linked to interest rates, so the income should rise when interest rates do. It yields 5.5pc.
Hipgnosis Songs Fund is another great option. It owns a very diversified portfolio of music royalties and pays out the income it generates when songs are played. Its returns are not correlated to that of the stock market so has the potential to do well no matter what shape the economy is in. People will keep listening to music. It yields 4.2pc.
Infrastructure funds, like song royalties, have income that is generated from recession-proof assets, such as telecommunication networks, hospitals, schools and roads. Two trusts I like are 3i Infrastructure, which yields 2.9pc, and HICL Infrastructure, which pays 4.7pc.
For the other quarter of Mr Rydon’s portfolio, he should consider more adventurous investments such as Finsbury Growth & Income, which buys companies with loyal customers and unique assets, such as Burberry and the London Stock Exchange. Another option is City of London, a “dividend hero” trust that has raised its dividend for more than 50 years in a row.
Rob Morgan, chief analyst at Charles Stanley, said:
I normally suggest people that need to access money in fewer than five years keep it in cash: it’s better to be behind inflation than risk a 20pc crash.
But if we were to build Mr Rydon a portfolio of trusts to deliver both income, protection and some growth in stormy markets, it would contain a mixture of stock market funds and “real assets” ones, such as that’s that buy property and infrastructure.
For growth and income, options include the “value” approach of Murray International and the more “growth”-orientated Scottish American. Exchange-traded funds might be less volatile than trusts as the share price of a trust can diverge from the value of its investments. Fidelity Global Quality Income ETF is worth considering.
Mr Rydon could also buy some UK stock funds. Shares at home are cheap and generate plenty of income. iShares UK Dividend ETF is an option and there are lots of good quality investment trusts to choose from that balance income and growth including Mercantile and Temple Bar.
Finally, commercial property and infrastructure investments are great as they naturally contain a hedge against inflation because income is linked to prices. They also produce a reasonably high starting income that has the chance of increasing.
Property investment trusts such as LXi Reit and UK Commercial Property Reit are good options as are International Public Partnerships and HICL Infrastructure.
