income funds...

ianr900 · 21 March 2006 at 12:14PM

What is the best way to earn a monthly income from a lump sum investment (say GBP40000)? I am considering a managed fund but am having difficulty finding information on how much they pay out! Is the yeild the same as annual interest paid? I am prepared to take some (modest) risk, and am hoping to make something like 8% return.
Is this a reasonable expectation? What are my options? Do I really need to find an IFA to advise me?
Thanks.

dunstonh · 21 March 2006 at 12:39PM

Do I really need to find an IFA to advise me?

Seeing as you dont know the answers to any of your questions, then I would say yes you do.

Also, what you are considering "a managed fund" suggests what you will do will be poor quality. Single fund solutions are rarely the best route (excluding FoFs).

You also havent said which tax wrapper you intend to be using (or which is most suitable to you).

ianr900 · 21 March 2006 at 1:24PM

Thanks for answering dunstonh.
Yes, I am a bit confused about how to proceed. If a managed fund is a poor solution, can you suggest a better solution? What other options are available that I should be considering?
I want to use the income to fund some travel abroad.

dunstonh · 21 March 2006 at 2:13PM

If a managed fund is a poor solution

You have to be careful on terminology here and comparing like for like. For example, is Invesco Perpetual High Income fund a poor fund. Not at all. However, is xyz company balanced managed fund a poor solution. Then yes, almost certainly. If the title contains cautious managed, balanced managed etc, then these can be poor quality funds. However, to throw a small spanner in those works, you can get fund of funds that are cautious or balanced and these can be very good value and desirable.

Generally it is regarded that you shouldnt invest in any one sector with all your money. You should spread it across the sectors and areas. For example had you invested in a FTSE100 tracker 5 years ago, you would have around £41,493 now. Had it been a FTSE250 tracker, it would be closer to £83,181. If you had picked the wrong one, you would not have been happy. That is past performance so no indication of future returns but it should be noted that the previous 5 years to that, the FTSE100 version was the better of the two. Which one is best going forward?

A decent cautious managed portfolio would be about £57,732 on above terms. An average cautious managed would be around £50,473.

If you look at focused funds, then european would be closer to £70,814. UK property fund £65,280. Korea - £123,245. Latin america £108,352. North America 40,403.

Thats just a sample (no point me going through over 6000 options!). So, what is best going forward? Nobody knows which fund will be best or really what sector (area to invest in). So, the best thing to do is hedge your bets and put your money in as many as you can with a percentage spread that averages out to suit your personal risk profile. Not my risk profile or anyone elses here but yours.

zag2me · 21 March 2006 at 2:19PM

Excellent stuff dunstonh, I found that explanation really helpfull

But I guess that is your job!

A question for you, related to the OP. What is the difference between a fund that is AC and a fund that is inc? I know what i means but what is the real world difference?

cheerfulcat · 21 March 2006 at 3:01PM

ianr900 wrote:

What is the best way to earn a monthly income from a lump sum investment (say GBP40000)? I am considering a managed fund but am having difficulty finding information on how much they pay out! Is the yeild the same as annual interest paid? I am prepared to take some (modest) risk, and am hoping to make something like 8% return.
Is this a reasonable expectation? What are my options? Do I really need to find an IFA to advise me?
Thanks.

I am not aware of any managed funds which pay out a monthly income.

Yes, the yield figure tells you the size of the dividend.

8% in income is not achievable by any safe or even moderately risky method. 8% per annum growth is perfectly possible. Bear in mind that long term capital growth comes largely from the reinvestment of dividends/interest; if you take these out as income you will restrict growth.

No, you don't necessarily need an IFA. If you have the time and inclination you can learn to organise and maintain your own investments.

ianr900 · 21 March 2006 at 3:11PM

Thanks dunstonh and cheerfulcat.
cheerfulcat, I don't undertand the difference between 8% growth and 8% income! I know I can't get both, but with a fund that produced 8% growth, couldn't I take that 8% as income and forego the growth?

cheerfulcat · 21 March 2006 at 3:26PM

The difference between income and growth is that growth is what happens to the capital; income is what is generated by that capital, such as interest or dividends. If you were to take the growth as income, you are in danger of depleting your capital ( because you are selling shares or units ); better to take the income generated naturally.

jackieblue · 21 March 2006 at 4:09PM

Hi. This is my first post but I've been reading other posts for a couple of weeks now. I have been looking at more "sophisticated" ways of saving beyond the cash ISA I do each year and an Egg deposit account. We have such lousy pension provision and I keep reading about such things as investment trusts and unit trusts and which ones are better than others. What I never actually see is how to buy these types of products. Dunstonh mentioned earlier "you don't mention ... tax wrapper ...". Again not really sure how to find out more about this. Don't want to keep sticking anything I've got into a straightforward interest account. Any suggestions on how to start.

cheerfulcat · 21 March 2006 at 4:40PM

Hi, jackieblue,

It's easy to buy funds, ITs and shares; all you need is a stockbroker's account, or an account with a discount broker/IFA. Tax wrappers are available through the same sources.

You can find out more about investing at Incademy and the Motley Fool. The MF is particularly useful for its discussion boards where there are many knowledgable posters. Ask a Foolish Question and Absolute Beginners are good places to ask basic questions about investing.

You'll need to read a few books, too. I can recomment The Motley Fool Guide to UK Investing and Which? Way to Save and Invest for a start but there are many more. Have a browse in the Fool Booksho p.

HTH

Cheerfulcat

jackieblue · 21 March 2006 at 5:38PM

Hello cheerfulcat, Thanks for that. I'll look into some of your leads. This time last year, my husband and I finally invited an IFA into our lives. He changed the agency on all our pensions, suggested my husband open yet another pension which he did. He didn't mention that we needed to claim additional tax relief ourselves and archived all my pension documentation without even having reviewed it (not enough money involved probably as I only work part time). I honestly think we gave him the total opportunity to become our "financial buddy" and we could all benefit. He hasn't come back to us once to say - dont' forgot your ISA limit, what about doing this with some of your money. This is why I think it's time to start learning to do some of this myself. As for reading books though - well that might be pushing it ! Thanks again. Jackieblue

income funds...

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