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1. A Guide to
INVESTING
FOR INCOME
There are many facets to your financial
personality and many ways to generate income

2. A Guide to Investing for Income
A Guide to
INVESTING
FOR INCOME
There are many facets to your financial
personality and many ways to generate income
The recent volatility of global markets has tested the nerves of than the rate of inflation, however,
even the most experienced investors, making it a difficult time the real spending value of your
for individuals who rely on income from investments for some investment is likely to fall.
or all of their needs.
Fixed interest
To avoid concentrating risk, it is deposits, but there is some risk that from bonds
important not to ‘put all your eggs the value of your original investment Bonds are issued by governments
in one basket’ by investing in just will fall. (known as gilts in the UK) and
one share or in one asset class. If Equity Income Funds – the income companies (corporate bonds) to
appropriate to your particular situation comes from dividends paid to investors as a way to borrow money
spreading capital across different shareholders. In return for some risk for a set period of time (perhaps
shares and different asset classes can to your capital, you may get a more 5 or 10 years). During that time,
reduce the overall level of risk. regular income than you would from the borrower pays investors a fixed
cash, and that income, as well as interest income (also known as a
Create a diversified your capital, may increase over time. coupon) each year, and agrees to pay
portfolio Property Funds – pay income back the capital amount originally
There are opportunities to create from rents, but the value of your invested at an agreed future date (the
a diversified portfolio through investment can fall as well as rise. redemption date). If you sell before
investing with fund managers who There are also mixed asset funds, that date, you will get the market
have the experience, talent and which invest your money in both price, which may be more or less than
robust investment process that bonds and equities. your original investment.
can withstand the ever-changing Many factors can affect the market
economic and financial climate and Generating income price of bonds. The biggest fear is
deliver a return above inflation over that the issuer/borrower will not be
the medium to long term. Interest from cash or money able to pay its lenders the interest
Funds are typically seen as a way market funds and ultimately be unable to pay
to build up a lump sum of money back the loan. Every bond is given a
over time, perhaps for retirement, The income varies in line with the credit rating. This gives investors an
but they can also be used to provide interest rate set by the Bank of indication of how likely the borrower
you with a regular income. England. The fund’s investment is to pay the interest and to repay
manager will aim to get the best the loan. Typically, the lower the
Type of income funds rate available, helped by that fact credit rating, the higher the income
that, with large sums to deposit, investors can expect to receive in
There are four main types of funds can often get better rates return for the additional risk.
income fund: than individual investors. The capital A more general concern is
amount you originally invested is inflation, which will erode the real
Money Market Funds – pay interest and unlikely to go down (subject to the value of the interest paid by bonds.
aim to protect the value of your money. limits for each deposit under the Falling inflation, often associated
Bond (Fixed Income) Funds – pay Financial Services Compensation with falling bank interest rates, is
a higher rate of interest than cash Scheme). If the interest rate is lower therefore, typically good news for
A Guide to Investing for Income

3. A Guide to Investing for Income
bond investors. Typically, bond but there are risks attached. For Look at the fund yield
prices rise if interest rates are example, the underlying properties This figure allows you to assess
expected to fall, and fall if interest might be difficult to let and rental how much income you may expect
rates go up. yields could fall. This could affect to get from a fund in one year. In
If you invest in bonds via a fund, both the income you get and the the simplest form, it is the annual
your income is likely to be steady, capital value. income as a percentage of the sum
but it will not be fixed, as is the case invested. Yields on bond funds can
in a single bond. This is because Balance your need also be used to indicate the risks to
the mix of bonds held in the fund for a regular income your capital.
varies as bonds mature and new with the risks
opportunities arise. The income from a fund may be Decide how frequentl you
y
higher and more stable than the wish to receive your income
Dividends from shares interest you get from cash deposited All income funds must pay income
and equity income funds in a bank or building society savings at least annually, but some will
Many companies distribute part account, but it can still go up and pay income distributions twice a
of their profits each year to down. There may be some risk to year, quarterly or monthly, so you
their shareholders in the form of the capital value of your investment, can invest in a fund which has
dividends. Companies usually seek but if a regular income is important a distribution policy to suit your
to keep their dividend distributions to you and you do not need to cash- income needs.
at a similar level to the previous in your investment for now, you may
year, or increase them if profit levels be prepared to take this risk. Select income units/
are high enough to warrant it. shares if you need
Income funds of cash regularly
Rental income the same type are The income generated in a fund is
from property and grouped in sectors paid out in cash to investors who
property funds The main sectors for income investors own income units. If you choose the
Some people invest in “buy-to-let” are: Money Market; Fixed Income alternative - accumulation units/
properties in order to seek rental (including UK Gilts, UK index-linked shares - your share of the income
income and potential increase in Gilts, Corporate Bond, Strategic Bond, will automatically be reinvested back
property values. Property funds Global Bond and High Yield); Equity into the fund. n
typically invest in commercial Income; Mixed Asset (ie.UK Equity
properties for the same reasons, and Bond) and Property.
Need help?
There are many facets to your financial
personality. There are many ways to
generate income. To discuss the options
available or to review your current
provision, please contact us.
A Guide to Investing for Income

4. This information sets out the basics of portfolio diversification. It is not designed to be investment advice and
should not be interpreted as such. Other factors will need to be taken into account before making an investment
decision. Content of the guide featured is for your general information and use only and is not intended to
address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, or
constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be
no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in
the future. No individual or company should act upon such information without receiving appropriate professional
advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a
result of acts or omissions taken in respect of any articles. Tax laws are subject to change, possibly retrospectively.
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