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www.InvestmentGuide.co.uk STOCK
Lump sum invested with the US Government in return for an
interest payment which rises in line with a US prices index. The stock, called
a Note or a Bond, has a fixed life at the end of which the US
Government guarantees to repay the nominal value of 100 in full plus the
rise in the US prices index since the stock was issued. In practice both
interest and capital are index-linked. The stocks mature between 10 and 30
years.
This stock is an excellent long term investment for people who
are risk averse. However the prices of the stocks may fluctuate rather
unpredictably in the short term. The stocks are denominated in US$, so if the
dollar appreciates against your base currency, then there will be a further
gain; if it depreciates there will be a loss. If you prefer to invest in Euros,
consider French Government OATi or in £
sterling there is Government Index-Linked Stock. At
the beginning of 2008 the US$ continued to be historically weak against the
£ and the € but this may vhange after the US Presidential election
in November 2008.
Who can invest Anyone.
How worthwhile Good value for higher rate taxpayers, who don't need a high income but wish to protect income and capital against inflation especially over periods of 10 years or more. The interest and repayment value depends on the current and expected rate of inflation. The prices may fluctuates quite widely, especially with the longer dated stocks.
Minimum Around £5,000 through a stockbroker because of minimum commission.
Maximum None.
Suitable Lump sums.
Money back At the redemption date. Or 2 working days if you sell before then; you can sell the stock at any time at the current market price.
Interest Variable. Inflation is measured by the non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All Urban Consumers (CPI-U), published monthly by the Bureau of Labor Statistics (BLS)
Interest paid Half-yearly direct to a US$ bank account or can be reinvested.
Tax Interest is liable to UK income tax for UK residents. US residents are liable to tax on the inflation allowance added each year to the stock. In the UK tax on the gain would only be paid when you dispose. It is not clear whether US non-residents would be liable to US tax on the inflation allowance although you are exempt from any US withholding tax or reporting if you are an exempt foreign person, (i.e. you don't live in the US, don't have business there and are not a US citizen).
Fees to pay Stockbrokers commission, usually subject to a fixed charge of $50.
Passbook None. Stock certificate or statement of ownership from your stockbroker if your stock is held by your stockbroker as nominee.
Children Unsuitable.
Risk Little if you hold until redemption. Some if sold before, but interest rate rises will not cause the price to fall as much as it does with stocks which have a fixed rate. Stocks with a longer period to redemption tend to fluctuate in price more than those with a shorter period.
How to invest Choose a stock from the list which matures close to the date you want your money back (e.g. expected retirement date).
Where from A UK stockbroker or Charles Schwab on-line if you already have US$. Compare commission. You can put a limit on your sale or purchase price and usually you can trade by phone or on-line and know the price you are dealing at.
Last updated 17
December 2007.