Investing for income?

Stubod

..If you are totally risk averse you could go do the route of a few "higher"interest current accounts. eg Santander, a couple of these will provide a home for 40k and give 3%...but you need to put £500 per month in, (and take it out again..then put it back in)..plus you need a couple of DD's per account. Similar offerings from Lloyds, but only 4k or so (I think), but at least your money is "safe" subject to the 85k protection. You could then put the rest in NSI, but the rates are pants at the mo. Alternatively you could put varying amounts into other "bonds", annually, 2 yearly etc..but leaving yourself enough to take a monthly income pending the annual bonds maturing.....anything else and your into some level of risk...definitely worth having a chat with a good IFA in my opinion...

alexanderalexander

Aged wrote: »

What would be the options for investing a sum of say, £300,000 to provide an income without exposing the capital to too much risk? Would be interested to hear others' opinions.

PS assume ISA limit already used up.

No one can advise you of what constitutes "low risk" unless you tell us for what time scale you intend to invest.

If you intend to invest for six months, it'd be very risky to put it all into shares due to volatility, and you should stick with cash. If you intend to invest for 20 years, it'd be extremely risky to keep your money in cash as there is a near-certainty you'd underperform significantly compared to an equity investment.

Ryan_Futuristics

The safest option would probably be a bond ladder

Bond funds put you at risk at capital loss when the interest rate rises (whether that happens next year or not, it is coming), however a short-term bond ladder involves buying individual bonds, at perhaps £1,000/each, with a staggered duration

So you might put 20% of your money into bonds with a 1 year maturity, 20% with a 2 year, etc. up to 5 years

This way you're getting an income from the bonds, you get your capital back regularly, and you then reinvest in more short-term bonds

Although your capital's tied up, your capital should be safe, and as and when interest rates rise, you can keep buying bonds with better yields ... The only risk is bond defaults, which is why you spread your investments as much as possible

It would be worth reading up in detail about how best to construct a bond ladder - and whether you're buying gilts, corporate bonds, etc. And some may say the low yields on bonds at the moment don't adequately cover the default risk ... I'd probably be looking at the safer end of the government bond spectrum (but I'm not a big bond investor)


Unfortunately income is the hardest thing to come by at the moment ... With bonds looking generally expensive, and cash savings eroded by inflation, stocks and shares have become the preferred income payers

Woodford Equity Income is probably about as safe an income-paying stocks and shares fund as I could recommend ... It should pay a fairly consistent 4% (subtract 0.6-0.75% for management fees), and prove quite resilient if the stock market drops ... A "safe" way in could be to drip-feed money in, rather than using a lump sum ... But the 4% returns should be fairly safe even if markets drop ... (In the long-term, funds like this should grow your capital)

P2P lending via RateSetter has a nice option as well - you can get 5.9% interest on a 5 year contract, and they'll pay the interest straight into your bank while reinvesting your capital

The only thing is P2P lending is quite a new industry, and no one's quite sure what the risks are yet ... So most seem to think investing 10% in the sector is about right


If you can ignore what happens to capital, and just want a decent return, I'd probably go 50% stocks & shares income paying funds; 10% P2P lending; 30% bond ladder; 10% cash savings ... But that's just me

Aged

Can you all just bear with me? In general, at this point in time, the money would be better off in the NS&I monthly income bond than in a bog standard easy access savings account, yes? So that's the 'no risk but low returns' scenario.

Now, if I wanted a bit more income and was willing to go just a little bit further up the 'risk' scale, what would my options be then?

jimjames

Aged wrote: »

PS assume ISA limit already used up.

ISA limit is pretty irrelevant anyway whether used or not, £300k would take 20 years to feed into an ISA.

Aged wrote: »

Now, if I wanted a bit more income and was willing to go just a little bit further up the 'risk' scale, what would my options be then?

You can get equity income funds that are paying 4% or so. You can also get various absolute return and balanced funds. I've not got a huge experience of those as I just use standard equity and tracker funds myself.

Linton

Aged wrote: »

Can you all just bear with me? In general, at this point in time, the money would be better off in the NS&I monthly income bond than in a bog standard easy access savings account, yes? So that's the 'no risk but low returns' scenario.

Now, if I wanted a bit more income and was willing to go just a little bit further up the 'risk' scale, what would my options be then?

A mixture of NS&I incomes bond (or similar) and some income generating investments. You dont have to do the same thing with all your money. Its likely to be much better to split it into tranches, some of which are very low risk with mediocre in come and some higher risk with better income. You adjust the %s to achieve your desired risk/reward balance.

Aged

Ryan_Futuristics wrote: »

Unfortunately income is the hardest thing to come by at the moment ... With bonds looking generally expensive, and cash savings eroded by inflation, stocks and shares have become the preferred income payers

Woodford Equity Income is probably about as safe an income-paying stocks and shares fund as I could recommend ... It should pay a fairly consistent 4% (subtract 0.6-0.75% for management fees), and prove quite resilient if the stock market drops ... A "safe" way in could be to drip-feed money in, rather than using a lump sum ... But the 4% returns should be fairly safe even if markets drop ... (In the long-term, funds like this should grow your capital)

I like the sound of that

Aged

jimjames wrote: »

I just use standard equity and tracker funds myself.

So what is the difference between the two?

ColdIron

Aged wrote: »

Now, if I wanted a bit more income and was willing to go just a little bit further up the 'risk' scale, what would my options be then?

I like the sound of that

Just so that you know, you've leap frogged several levels of risk from NS&I to the Woodford fund

jimjames

Aged wrote: »

So what is the difference between the two?

The balanced and absolute return funds use a mix of bonds and shares. Due to my age I'm happy to be almost 100% in shares so use trackers that match various stock market indices and don't need a manager to choose the shares. However they aren't really suitable for income purposes.