Where to invest money primarily for supplemental income

BruceThunder

Hello. I'd like some ideas, please.

A daunted investor is not interested in jumping through a hundred hoops to gain every possible penny; she'd just like to put her money somewhere that lets her almost ignore the investment and enjoy the supplemental income (I say almost ignore; she'll naturally expect some growth down the line). The sum in question is well into six figures.

*I know this is yet another request for recommendations, but every thread goes very quickly into a lot of boring detail. Maybe I'll be told off for wanting to ignore boring detail, but there we are. And I accept that some boring detail really shouldn't be ignored...

jimjames

One of the investment trust dividend heroes might do the job. High level of income, far more than savings but obviously risk to capital. Although if you're not checking the price daily then it shouldn't be an issue and hopefully over time there will be some capital growth too.

https://www.theaic.co.uk/income-finder/dividend-heroes

From that list City of London IT, current yield 4.68% as just one example

dunstonh

A daunted investor is not interested in jumping through a hundred hoops to gain every possible penny; she'd just like to put her money somewhere that lets her almost ignore the investment and enjoy the supplemental income (I say almost ignore; she'll naturally expect some growth down the line). The sum in question is well into six figures.

The requirement for income and the potential for growth on top will depend on the income draw she plans to take.

*I know this is yet another request for recommendations, but every thread goes very quickly into a lot of boring detail.

Insufficient information given by you to answer.  How much income?  How much growth?  How long is the timescale required for the income?   Which tax wrappers should be used?  Previous experience and knowledge of investing? Risk profile?

JohnWinder

Some, maybe ‘the’, essential elements of choosing a sensible investment portfolio is make it relate to the investor’s:  risk tolerance (or how much the value jumps around month to month or year to year); and to their spending timeframe (is it soon, and lots of money, or distant and bits at a time?). Sort those out (you haven’t told us any of that boring stuff) and choose something well diversified and you can completely ignore it.

Notepad_Phil

jimjames said:

One of the investment trust dividend heroes might do the job. High level of income, far more than savings but obviously risk to capital. Although if you're not checking the price daily then it shouldn't be an issue and hopefully over time there will be some capital growth too.

https://www.theaic.co.uk/income-finder/dividend-heroes

From that list City of London IT, current yield 4.68%

If this truly is just for supplemental income and she has enough other cash for her needs, then a +1 for investment trusts as a suggestion - though with a six figure sum I'd personally go for at least two with at least one of them with a global remit.

BruceThunder

I appreciate these replies, thank you. As it seems a bit more info might help:

Likely risk - some caution, so low, possibly medium, as the capital is likely to be left for a few years (probably 10 or more).
Re spending, or "draw", this will be mild and really not expected to exceed the yeild; she is mortgage-free and working.
Required growth - ahead of real life inflation (yes, I know it's horrendous currently, but let's bank on some normality returning in the next few years).
Re tax wrappers, she'll expect to pay tax but is of course intending to use them subject to not jumping through hoops.
Previous experience is very minor.

In a nutshell, if her capital can bring, for example, 3%, and growth outstrips inflation (eventually), she'll have what she's looking for.

dunstonh

Re spending, or "draw", this will be mild and really not expected to exceed the yeild; she is mortgage-free and working.

Yield is just one method of income provision. Total return is the other.  Many prefer total return as it gives a consistent monthly withdrawal whereas yield is variable and you never know what its going to be.

Required growth - ahead of real life inflation (yes, I know it's horrendous currently, but let's bank on some normality returning in the next few years).

Growth will depend on how much you chase yield.   It is possible to get a high yield (by today's standards) and see little or no growth.   Alternatively, you can target less yield and have a bit more growth.       Or you can ignore yield and go with total return.

Re tax wrappers, she'll expect to pay tax but is of course intending to use them subject to not jumping through hoops.

But tax can be reduced and will need to be mitigated.   Annual bed & ISA.  Potential Annual bed & pension.  Annual CGT allowance use.  When you are into 6 digits, there is some work required.  There is also the potential for trusts to be used depending on the size of the investments.

In a nutshell, if her capital can bring, for example, 3%, and growth outstrips inflation (eventually), she'll have what she's looking for.

3% draw rate is not going to give anyone concern about long-term sustainability.

Previous experience is very minor.

This is going to be the problem.

Take the last 6 months.  Every risk profile is down around 8-15%.  Lower risk assets and higher risk assets have all dropped by a similar amount.   On a £20k invest, a 10% loss is £2000.    On a £500,000 investment, that is £50,000.    New and inexperienced investors tend to be nervous.  And the more you have, the bigger the losses will be in monetary terms.   She is going to need to understand the basics of investing and the scale of the volatility that will occur.   And there will be sustained periods of losses that could run into multiple years and take many years to recover

Linton

BruceThunder said:

I appreciate these replies, thank you. As it seems a bit more info might help:

Likely risk - some caution, so low, possibly medium, as the capital is likely to be left for a few years (probably 10 or more).
Re spending, or "draw", this will be mild and really not expected to exceed the yeild; she is mortgage-free and working.
Required growth - ahead of real life inflation (yes, I know it's horrendous currently, but let's bank on some normality returning in the next few years).
Re tax wrappers, she'll expect to pay tax but is of course intending to use them subject to not jumping through hoops.
Previous experience is very minor.

In a nutshell, if her capital can bring, for example, 3%, and growth outstrips inflation (eventually), she'll have what she's looking for.

I agree with other posters that City of London IT could be appropriate for the objectives.  Also agree that she should also look at a similar fund that is invested more globally, perhaps Murray International Trust. However these could be volatile

The risk would not be permanent high capital losses but there could be significant capital volatility.  The income volatility should be less severe. She must be prepared to accept volatility in price.  Both CoL and Murray dropped by about 30% in price at the start of COVID in 2020 and took the best part of a year to recover in price but the dividends were not affected.  She should not panic and sell in such circumstances.

However for a sum well into 6 figures I would be very wary of making suggestions - suppose there was a global crash and she lost a lot of money.  You could be blamed  and personal relationships ruined even if your suggestions were reasonable.  She could consider paying for advice from an IFA (Independent Financial Advisor).  The "I" is important.

JohnWinder

In a nutshell, if her capital can bring, for example, 3%, and growth outstrips inflation (eventually), she'll have what she's looking for.

OK, here’s how I read that: she wants to take 3%/year from the portfolio, AND have its real growth >zero. You could probably achieve that with a good strategy, but it’s a high bar and you’ll find retirement simulators like cfiresim show that in many instances a good strategy would fall short.
A lot of people, in line with their circumstances would be happy to see the portfolio depleted after 30 years since they’ll be dead, but if you want it to retain its present real value as well as paying 3%/year, why not?

BruceThunder

Have I got this right?

I think I'm being told here that regarding the 3% (as a current example), it might be more realistic to expect this when adding yeild to capital growth, and thereby not particularly expecting effective long-term growth at all. This, I'm certain, would make the lady happy enough - she won't be here forever and a decent sum should be left to pass on (though this concern is secondary at best and not to be considered here).

All the replies have shed light on the situation and are appreciated.

*She isn't naive enough to panic and sell when capital values slump. This point brings another question: can investment trusts be bought and sold as readily as shares? And now I think of it, same question re funds.

wmb194

BruceThunder said:

Have I got this right?

I think I'm being told here that regarding the 3% (as a current example), it might be more realistic to expect this when adding yeild to capital growth, and thereby not particularly expecting effective long-term growth at all. This, I'm certain, would make the lady happy enough - she won't be here forever and a decent sum should be left to pass on (though this concern is secondary at best and not to be considered here).

All the replies have shed light on the situation and are appreciated.

*She isn't naive enough to panic and sell when capital values slump. This point brings another question: can investment trusts be bought and sold as readily as shares? And now I think of it, same question re funds.

Investment Trusts are companies listed on the stock market and you buy shares in them usually via a stockbroker e.g., the 'ticker' for City of London is CTY.

https://www.londonstockexchange.com/stock/CTY/city-of-london-investment-trust-plc/company-page

There are a fair number of the them and the AIC website does quite a good job of listing them.

https://www.theaic.co.uk/aic/find-compare-investment-companies?sortid=Name&desc=false