How to invest so you can travel the world

Travelling more is on many people’s retirement bucket list. Usually, it involves continuing to live in the UK but taking a few extra holidays a year. However, the more adventurous among us might wish to go further.

Last year, for example, Samuel wrote to the IC Portfolio Clinic seeking suggestions on how to get his portfolio ready for a six-year sailing trip around the world once he retired (‘Is £200k enough to retire and sail the world?’ IC 8 Nov 2024). If you have a large enough investment pot, you could even take a career break when you are younger, and go back to work later on.

So how should you invest to support your career as a globetrotter?

A ‘set and forget’ portfolio

The first step is working out how much money you will to need. Depending on your style of travelling, you may spend a lot more than you normally would to live in the UK, and this has to be factored into your wider retirement plan. If you retire at, say, the age of 60, your investments may well have to support you for 35 years.

It’s quite normal to spend more in the initial, more active phase of retirement. Your expenditure then tends to drop when you are older and become more sedentary, then increase again if you need care towards the end of your life (the so-called “retirement smile”). So it’s worth making a proper financial plan to figure out how much you can afford to spend when you travel, without compromising your financial security later on.

the whole process – from generating sufficient income to automatically paying it into a bank account for spending – needs to be automated

When preparing your investment strategy, remember the plan is to spend time admiring breathtaking mountain views or exploring hidden corners of faraway cities – not obsessively checking your portfolio.

So you should build a portfolio that requires very little maintenance, as Rob Morgan, chief investment analyst at Charles Stanley, notes. “That probably rules out making decisions to sell investments to fund withdrawals. Instead, the whole process – from generating sufficient income to automatically paying it into a bank account for spending – needs to be automated,” he says.

This includes putting everything you need in place before you travel, including setting up drawdown on your pension ahead of time if you haven’t done so yet; it can take some time to sort out and be complicated to do from abroad.

Income options

You have a few options to build your income portfolio. Jim Harrison, investment director at Chancery Lane, makes the case for using investment trusts that have an uninterrupted record of paying their dividends – the likes of Law Debenture (LWDB).

One of the greatest financial risks to consider with an income portfolio is that the income payments stop. So you should look for trusts that can use reserves to pay dividends if the income from the underlying portfolio dries up. As Harrison puts it: “F&C (FCIT) has paid a dividend every year since 1868. You would have to be very, very unlucky for them to stop on the one year you go around the world.”

He suggests investors should avoid trusts that pay dividends as a percentage of their net asset value (NAV) because this means the level of your income payments depends on capital performance.

Morgan, meanwhile, suggests a more varied strategy, with “a core of income-generating funds to offer wide diversification across equity and bond markets”. Options that can be combined include: multi-asset income funds such as Ninety One Diversified Income (GB00BV9G3J51); equity income options such as M&G Global Dividend (GB00B39R2Q2) and Artemis Global Income (GB00B5ZX1M70); UK-focused exposure via Temple Bar (TMPL); and Vanguard Global Credit Bond (IE00BYV1RG46) for bonds.

Morgan also differs from Harrison on the wisdom of using trusts that are more focused on capital growth, saying: “One problem with using equity income funds [such as those mentioned above] is that a portfolio can become a bit lopsided and be lacking in terms of overall growth prospects versus income. Including well-rounded funds such as the Artemis or M&G ones does help, but to go further it is worth considering an investment trust that essentially turns growth into income, such as JPMorgan Global Growth & Income (JGGI).”

Single stocks are trickier but not completely out of the question. “In the distraction of travelling it’s probably best to let funds do the heavy lifting and to minimise decision-making around individual equities – although a carefully chosen, broad portfolio of dividend-paying blue-chips is also a valid strategy,” Morgan says.

Financial planning

As well as a good income strategy, you will need to organise your overall finances in the best possible way. Start by building a significant cash buffer in case something goes wrong. You would need this anyway in retirement, but if you are travelling the world, an emergency could be costlier, so your cash reserves should be bigger. Harrison suggests a year’s worth of expenditure as a starting point.

You will need to decide what to do with your home, depending on whether you have paid off your mortgage and how long you plan on being away. Leaving it empty and having someone check it regularly might well be the most straightforward solution.

If you are planning on travelling for years rather than months, you could consider selling, and the money could be invested and help fund your travels. But you will need a place once you come back to the UK, and by that point prices may well be higher and you will have to pay stamp duty on top. So this is really only an option if you were looking at downsizing anyway.

Or you could rent it out. But as you are not in the country you will need to hire a property manager, which will eat into any rent you receive. You will also have to pay income tax on the rest of that income.

Finally, check how your travel plans affect your tax position. “If you’re travelling in retirement but not moving abroad permanently, you’ll likely remain a UK tax resident. This means your UK pension income and other UK-sourced earnings will still be subject to UK tax,” explains Rachel Jensen, financial adviser at Jensen Wealth Management. “Track how long you stay in each country, as some may treat you as a tax resident if you exceed their thresholds, even unintentionally. The UK has double taxation agreements with many countries to help avoid being taxed twice, but the rules vary widely.”