A Guide To Investing For Income Singles


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A Guide To Investing For Income Singles

  1. 1. A Guide toINVESTINGFOR INCOMEThere are many facets to your financialpersonality and many ways to generate income
  2. 2. A Guide to Investing for IncomeA Guide toINVESTINGFOR INCOMEThere are many facets to your financialpersonality and many ways to generate incomeThe 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 yourfor individuals who rely on income from investments for some investment is likely to fall.or all of their needs. Fixed interestTo avoid concentrating risk, it is deposits, but there is some risk that from bondsimportant not to ‘put all your eggs the value of your original investment Bonds are issued by governmentsin one basket’ by investing in just will fall. (known as gilts in the UK) andone share or in one asset class. If Equity Income Funds – the income companies (corporate bonds) toappropriate to your particular situation comes from dividends paid to investors as a way to borrow moneyspreading capital across different shareholders. In return for some risk for a set period of time (perhapsshares 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 aCreate a diversified your capital, may increase over time. coupon) each year, and agrees to payportfolio 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 (thea diversified portfolio through investment can fall as well as rise. redemption date). If you sell beforeinvesting with fund managers who There are also mixed asset funds, that date, you will get the markethave the experience, talent and which invest your money in both price, which may be more or less thanrobust investment process that bonds and equities. your original investment.can withstand the ever-changing Many factors can affect the marketeconomic and financial climate and Generating income price of bonds. The biggest fear isdeliver a return above inflation over that the issuer/borrower will not bethe 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 payto build up a lump sum of money back the loan. Every bond is given aover time, perhaps for retirement, The income varies in line with the credit rating. This gives investors anbut they can also be used to provide interest rate set by the Bank of indication of how likely the borroweryou 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 theType 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 inThere 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 realMoney 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 associatedBond (Fixed Income) Funds – pay Financial Services Compensation with falling bank interest rates, isa 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. 3. A Guide to Investing for Incomebond investors. Typically, bond but there are risks attached. For Look at the fund yieldprices rise if interest rates are example, the underlying properties This figure allows you to assessexpected to fall, and fall if interest might be difficult to let and rental how much income you may expectrates 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 annualyour income is likely to be steady, capital value. income as a percentage of the sumbut it will not be fixed, as is the case invested. Yields on bond funds canin a single bond. This is because Balance your need also be used to indicate the risks tothe mix of bonds held in the fund for a regular income your capital.varies as bonds mature and new with the risksopportunities arise. The income from a fund may be Decide how frequentl you y higher and more stable than the wish to receive your incomeDividends from shares interest you get from cash deposited All income funds must pay incomeand equity income funds in a bank or building society savings at least annually, but some willMany companies distribute part account, but it can still go up and pay income distributions twice aof their profits each year to down. There may be some risk to year, quarterly or monthly, so youtheir shareholders in the form of the capital value of your investment, can invest in a fund which hasdividends. Companies usually seek but if a regular income is important a distribution policy to suit yourto 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 mayyear, 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 regularlyRental income the same type are The income generated in a fund isfrom property and grouped in sectors paid out in cash to investors whoproperty funds The main sectors for income investors own income units. If you choose theSome 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 incomeincome and potential increase in Gilts, Corporate Bond, Strategic Bond, will automatically be reinvested backproperty values. Property funds Global Bond and High Yield); Equity into the fund. ntypically invest in commercial Income; Mixed Asset (ie.UK Equityproperties 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. 4. This information sets out the basics of portfolio diversification. It is not designed to be investment advice andshould not be interpreted as such. Other factors will need to be taken into account before making an investmentdecision. Content of the guide featured is for your general information and use only and is not intended toaddress your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, orconstitute, advice. Although endeavours have been made to provide accurate and timely information, there can beno guarantee that such information is accurate as of the date it is received or that it will continue to be accurate inthe future. No individual or company should act upon such information without receiving appropriate professionaladvice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as aresult of acts or omissions taken in respect of any articles. Tax laws are subject to change, possibly retrospectively.Published by Goldmine Media Limited, Prudence Place, Luton, Bedfordshire, LU2 9PEArticles are copyright protected by Goldmine Media Limited 2012. Unauthorised duplication or distribution is strictly forbidden.