Investing to provide a monthly income

Bluenose123

I would like advice on the best way to invest 100k which provides a monthly income which I can use to top up my company pension.
Money is currently in mixture of current/savings accounts which on average only pay 1.5 percent interest.

Is the best place a stocks and shares fund which pays monthly interest and if so looking for recommendations on best company to use and what sort of yearly return I could expect assuming I want minimum risk

I would add I do have other saving which I would leave in instant access accounts as an emergency fund so could afford to tie the 100k up for up to 5 years but I would like to be able to access a monthly income from it without reducing the 100k capital.

Linton

What do you mean by minimum risk? What risks are unacceptable? Whatever you do with your money will have a significant risk or downside of one of the following:
(a) short term variable income
(b) short term variable capital value
(c) long term failure of income matching inflation
(d) capital not available in an emergency
(e) permanent loss of capital
(f) permanent loss of income

Why is your timeframe only 5 years? What happens after then?

Some options with typical sustainable income rates:
Inflation linked Annuities (over 55): 3%. Risk:de
Fixed rate annuities (over 55): 5%. Risk:cde
Fixed term bank accounts: 1.5%-2.5% depending of length of term. Risks: cd
Long term dividend paying shares in funds: 3.0 %. Risks:b
Long term growth from balanced shares in funds: 3.5%. Risks:a,b
High interest bonds: 8%. Risks:cdef

There could be arguments about some of the numbers but I hope this gives a general picture. Nothing is perfect, higher income is linked to greater risk. It all depend on what you want and for how long.

Bluenose123

Thank you Linton.

Minimum risk for me is not loss losing any of the capital.

I am under 55 so first couple are not options for me and talk about 5 years investing as after that time I plan to move house so will need access to some if not all the capital

KonkyWonky

If you are not prepared to accept any risk of loss to capital then stocks & shares is not for you. There is no share or fund that carries zero risk.

Even low risk funds carry a significant risk of losing capital at some point. That's the nature of the stock market.

Besides, if by monthly income you want enough to live off then it's unlikely a pot of £100k is sufficient unless you can get by on a couple of hundred pounds per month.

Linton

Bluenose123 wrote: »

Thank you Linton.

Minimum risk for me is not loss losing any of the capital.

I am under 55 so first couple are not options for me and talk about 5 years investing as after that time I plan to move house so will need access to some if not all the capital

If you need the money in 5 years your easiest option is fixed term deposit accounts. Anything involving stocks & shares would have a moderate risk of a reduction in capital over a short time period of say 5 years.

Sea_Shell

I agree with the fixed term option, but, this doesn't provide a monthly income which the OP seeks. Or do some pay monthly rather than on maturity?

dunstonh

Taking an income from cash is actually quite high risk. The £100k will be impacted by shortfall risk and inflation risk.

The spending power of £100k will be about £67k in 10 years time. With the interest being drawn, it will be losing money in real terms. That, in turn, is likely to see the capital used to supplement income. So, the capital will start falling in value. Then you enter a spiral as less interest is being paid, so more capital is drawn.

So, not using risk based investments can create high risk of loss.

Linton

Sea_Shell wrote: »

I agree with the fixed term option, but, this doesn't provide a monthly income which the OP seeks. Or do some pay monthly rather than on maturity?

From memory there are a few which pay monthly (eg NS&I) but I havent looked recently. The other option is to set up a ladder: split up the money into say 5 tranches - a 1 year account, a 2 year account etc .... and an n year account Then as each matures take the interest and put the rest into a new fixed term account, to end up with everything maturing when the house is to be purchased. That will give you a lump sum each year which can be spent on a monthly basis.

Linton

dunstonh wrote: »

Taking an income from cash is actually quite high risk. The £100k will be impacted by shortfall risk and inflation risk.

The spending power of £100k will be about £67k in 10 years time. With the interest being drawn, it will be losing money in real terms. That, in turn, is likely to see the capital used to supplement income. So, the capital will start falling in value. Then you enter a spiral as less interest is being paid, so more capital is drawn.

So, not using risk based investments can create high risk of loss.

The OP wants some or all of the money in 5 years time for a house purchase.

firestone

Sea_Shell wrote: »

I agree with the fixed term option, but, this doesn't provide a monthly income which the OP seeks. Or do some pay monthly rather than on maturity?

Masthaven bank pay monthly and unusually they will let you pick you own term from 12 to 60 months and anywhere in between i.e 33 or 47 etc.So if you want different maturity dates they will give a quote using their online calculator

Thrugelmir

Ford Money are offering decent rates on fixed term deposits at the current time.