Investing for Income

Millions of people may rely on their savings to produce an income in order to boost their pensions and whilst low interest rates may be good news if you have a mortgage, they are devastating if you are trying to live off the interest. So where can you get an income if you don’t want to eat in to your capital?

There are a variety of different investment vehicles that can be used and as with anything that is not purely based on cash there is likely to be an element of risk attached. The trick is to marry up the shorter term needs to the longer term outlook and find a combination that you are comfortable with. This is where you need the expertise of an Independent Financial Adviser who can explain things to you and design an appropriate portfolio for your individual circumstances.

A few of the types of funds that might be considered include:-

Corporate Bond Funds. Instead of investing in shares, the fund managers lend the money to a variety of companies for a given period in exchange for a set rate of interest. At the end of the period the loan must be repaid. They are normally less volatile than equity investments. They are often available through ISAs (Individual Savings Accounts) where the investments are held tax efficiently.

Distribution Funds. These are designed to distribute the income they generate. This is known as “natural” income and is generally paid out twice a year. The funds normally invest in a mixture of shares (in companies that have a history of paying good dividends), corporate bonds, and other fixed interest securities. Their primary purpose is to offer the potential for the natural income to increase in value over time if the anticipated capital growth is achieved.

Higher Income Funds. These can often be misunderstood by investors as they can actually be investing only in shares, but in companies that have a higher than average dividend payment. The fluctuations of the share values can substantially outweigh the extra dividend value, although over the longer term, with values low at the moment, they offer growth prospects as well.

High/Extra Income Plans. These often promise an attractive fixed level of income for a given period but the return of your capital is often dependant on future stock market performance.

The value of investments can fall as well as rise. You may not receive the original amount invested.

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