How can we finance our aid work?

By THIS IS MONEY
Updated:

 

My wife and I are very fortunate to be able to go travelling now that our children have moved out and we have sold our house.

School Children in Africa

We want to put something back into society with aid work. But we need our money to work for us and not spend our capital.

We have an apartment in Berlin from which we earn £175 a month.

We also have £65,000 in a 3.5% easy access account plus another £50,000 coming from the house.

What is the best way to invest our money to make maximum profit to live on while travelling for a few years? C.C., Elmbridge, Surrey

Danny Cox, head of financial planning strategy at independent financial adviser Hargreaves Lansdown, replies: Your investment choices will depend upon a number of different issues including how long you plan to invest for, how much income you require and how much risk are you prepared to accept.

History tells us that over time, cash-based savings will not beat inflation. This means the value of your capital will fall even with the interest reinvested. This situation becomes worse if you spend the interest.

Ensuring your capital is working for you is different from making 'maximum profit'. Shooting for the stars in performance terms is only ever achieved with the benefit of perfect hindsight.

It will involve investing in real assets such as the stock market and inevitably there will be times when your capital falls in value. You would have to be happy with this situation and take at least a five-year view.

One solution would be to set aside sufficient cash to make you feel comfortable and to meet any short-term expenditure.

This figure might be as low as £10,000 but could easily be much higher, only you can decide. Once you have decided the level of your cash cushion, maximise the return.

If you will remain non-taxpayers the interest is payable without tax deduction, improving the overall return.

For longer-term investing, UK Equity Income funds could be the answer.

Bought within an Isa, there would be no further tax to pay on either the income or the growth and up to £20,400 could be sheltered in this tax year.

The dividend income from the fund could be used to supplement your other income and the aim would be that your capital would also grow over time.

My current fund favourites are Invesco Perpetual Income, JO Hambro UK Equity Income, and Newton Income.

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