70k to invest for income - best options

Technoholic

Hi

I have approximately 70k available that I want to invest. I currently am in a good position when it comes to retirement savings, I'm meeting my own targets for SIPP contributions etc and I don't have any other debt except my joint mortgage with my wife. That's manageable and gets overpaid with my salary so not looking to put any more into that right now. 

I'd like to make this 70k work the hardest it can. I'm not quite looking for a "passive" income from it, as I don't think there really is such a thing, but I equally don't want to have to manage it everyday. 

I have considered a BTL property, I could use this as around 30% deposit for the average property around here with reasonable yield and potential to let to commuters, plus I do quite like the idea of starting to own a couple of properties down the line as income generators plus capital for the retirement fund. But I'm aware that it's not the easy option it might have been before, and will take work for not a huge gain. 

I guess my question is, could I get a similar return from other avenues with less work than property, and if so, where? I currently invest in my SIPP in a diverse set of funds and equities but they are tailored for growth rather than income. And I know little about income focused funds etc. Income is key, not growth although any growth would of course be welcome. 

Any advice would be great to hear.

Thanks

Prism

The simple approach is just to use the same approach that you are with the SIPP and then sell units of your funds when you need an income, maybe just once a year. You would also get any dividends that those funds generated which might amount to about 1-1.5% currently based on a global allocation.

Technoholic

But then surely I'm eroding the capital rather than potentially growing it? It's not a priority but I'd rather not dig into it if possible. 

Dividend based income was my real alternative thought, if 1.5% is the most I could expect that's less than I was basing my calculations on

El_Torro

Why is income key?

BTL is an option, though comes with its own risks. Sure, you'll get monthly rent, but what if the tenants stop paying and refuse to move out? Or you have to do something big, like replace the boiler, and it costs more than one month's rent? Income from BTL isn't particularly tax efficient either. 


My suggestion would be to stick £40k in a Stocks & Shares ISA this year (£20k from you and £20k from your wife) and the remaining £30k in when the next tax year starts. There are funds which specialise in high dividends, though the dividends you receive might not be particuarly high. Many people are forecasting a rocky time ahead for shares, which doesn't bode well for dividends either.

Technoholic

Income is key because I have taken care, for now, of areas for growth, and want to start looking at how my money can work for itself to generate a bit of income to start "passively" paying for my non work activities, fun stuff, etc. My intention is to put an extra 12-15k into this "pot" per year and eventually I'd like to see if I could even generate enough income to pay for all or most of my outgoings.

cx6

I would avoid BTL until you see what new regulation is coming down the line in early 2022 (Renter's Reform Bill)

tebbins

Technoholic said:

But then surely I'm eroding the capital rather than potentially growing it? It's not a priority but I'd rather not dig into it if possible. 

Dividend based income was my real alternative thought, if 1.5% is the most I could expect that's less than I was basing my calculations on

No, if you prioritised dividend paying stocks, there is an extent to which the companies erode their capital or future growth prospects to pay the dividends. However that doesn't hold true for all businesses - newspapers & tobacco don't need to worry about retaining and reinvesting earnings too much.
That said don't fall for "low dividend/high growth" myth. Since the SEC started to allow buybacks in 1982, the S&P 500 has started to pay our more in dividends and buybacks than total profits. That way, even though the companies pay out more than a higher dividend paying index like the FTSE 100, you have the choice about whether to take it as income by selling.
Start with your objectives, how much income do you want from this? The FTSE 100 and 250 have averaged a 3-4% yield since they started in the 80s, Vanguard do a FTSE All World High Dividend Yield ETF which pays about the same.
Your other options are bonds and cash, right now the income from those are lower than what you'll get from most equity funds.
You could also try generating an income from gold or bitcoin as some posters like to insist you can.
Again I would advise thinking in terms of the total return rather than thinking selling capital is bad and squeezing income is good.

Thrugelmir

Might as well overpay your mortgage by as much as possible. Over time you can then reduce your monthly committed outgoing. 

Gary1984

You could split the funds between the world high dividend ETF mentioned above and trackers for FTSE 100/250 and Asia Pacific.

You could also consider some REITs to earn rents without the hassle or other investment trusts targeting income.

Individual company shares like Unilever pay steady dividends as well but they're higher risk and you'd own them in a FTSE100 tracker anyway.

Pick a few of these options and sit back and collect the dividends. Much simpler than buy to let and much less risk due to diversification. You might get a yield of around 4% a year.

Technoholic

Gary1984 said:

You could split the funds between the world high dividend ETF mentioned above and trackers for FTSE 100/250 and Asia Pacific.

You could also consider some REITs to earn rents without the hassle or other investment trusts targeting income.

Individual company shares like Unilever pay steady dividends as well but they're higher risk and you'd own them in a FTSE100 tracker anyway.

Pick a few of these options and sit back and collect the dividends. Much simpler than buy to let and much less risk due to diversification. You might get a yield of around 4% a year.

So, simpler than BTL for sure, and maybe more of a yield if I am lucky but with BTL at least the renter is growing my capital at a rate unlikely to be achieved in the markets though, right? So while capital growth isn't my goal with this money, at least at the end of my mortgage, I have a property that can add to my retirement pot, or am I missing something?

Thrugelmir

Technoholic said:

Gary1984 said:

You could split the funds between the world high dividend ETF mentioned above and trackers for FTSE 100/250 and Asia Pacific.

You could also consider some REITs to earn rents without the hassle or other investment trusts targeting income.

Individual company shares like Unilever pay steady dividends as well but they're higher risk and you'd own them in a FTSE100 tracker anyway.

Pick a few of these options and sit back and collect the dividends. Much simpler than buy to let and much less risk due to diversification. You might get a yield of around 4% a year.

So, simpler than BTL for sure, and maybe more of a yield if I am lucky but with BTL at least the renter is growing my capital at a rate unlikely to be achieved in the markets though, right? So while capital growth isn't my goal with this money, at least at the end of my mortgage, I have a property that can add to my retirement pot, or am I missing something?

At the end of the mortgage term the debt owed needs to be repaid.