Investing for Income
‘It’s better to have a permanent income than to be fascinating’ - Oscar Wilde
It has rarely been harder for those seeking an income than the current era. Low interest rates are all well and good for borrowers, but they are a curse for income seekers.
If you think about it, if interest rates are just 1%, you will need £1 million in the bank to provide only £10,000 per year income. Worse still, if you dip into your capital the residual income goes into a downward spiral.
What do you do for income then? Maximise your ISA allowance each year first and foremost to take as much of your income tax free as possible. There is a risk to being too safe when investing for income. Don’t forget that inflation can destroy the real rate of return that you receive over time.
Normally, a mixture of gilts, corporate bonds, high yield bonds, equity income and commercial property funds can deliver a consistent and reasonable level of income, but you will need to keep a close eye on your portfolio to ensure you remain diversified. As discretionary managers, this is a responsibility that we are happy to take on for you.
Investing for Growth
“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong” – George Soros
If you’re investing for capital growth, you can be sure that your money will never grow in a straight line. We believe that good investment is about losing less during the bad times (there will be many) as it is about making money in the good times (there will be many of these too). Simply buying an investment and holding it for years will rarely prove to be the most successful tactic.
Capital growth will not happen by accident. It needs to be encouraged. Our job is to try to find the right mix for the right time. There is a time to be brave just as there is a time to be cautious. We will try to find growth from different sources too. It’s not just about finding stocks that go up. Longer term growth is greatly enhanced by reinvesting bond yields, interest payments and, yes, stocks that go up. Most of all though it is about avoiding the “torpedoes” that can destroy years of hard work in a short space of time. Diversification of investments is key. We never forget this.
Or A Bit Of Both
It’s sometimes nice to feel that we’re getting something back from our investments even though we don’t necessarily need it right now. Those who invest for income generally need the maximum level of income that they can achieve within the risk parameters that are laid down. Those who invest for growth are usually prepared to tuck an investment away and reinvest dividends and interest along the way.
But there are those in the middle who don’t need a high level of income, but a little bit may help with the odd treat or unexpected expense. Capital growth is still important though. Our balanced or conservative portfolios offer the option of taking the income that they produce as well as reinvesting it for growth. As their names suggest, neither will be taking big risks so returns shouldn’t be spectacular. But they may provide you with that little bit of extra.