Income investing - newbie question

ChrisFN66

Hi, I’m completely new to investing so please forgive me if this post is ridiculous. Basically, I have £100k to invest. In what? Goodness knows! I’ve been reading about income investing which left me wondering if I played my cards right, could it be a realistic expectation to generate around £500 per month?

ColdIron

It's doable. 6% is on the high side and you should manage your expectations for capital growth, it's unlikely, prepare for a loss in value. But if you choose income over growth that's the trade off you make

Dividends are often paid quarterly, sometimes monthly, annually or bi annually and depending on the payment dates of your investments it will be lumpy, not consistent every month. Maybe lots in, say,  March, not so much in April etc. It's best to think of it as roughly £6,000 per year (it will vary) rather than £500 a month

Linton

ChrisFN66 said:

Hi, I’m completely new to investing so please forgive me if this post is ridiculous. Basically, I have £100k to invest. In what? Goodness knows! I’ve been reading about income investing which left me wondering if I played my cards right, could it be a realistic expectation to generate around £500 per month?

I agree with @ColdIron that 6% spread over a year is just about doable but it is at the high end  of what is possible without taking high risks. My income portfolio targets 6%. But...

1) dont expect your returns will increase with inflation, at least in the short/medium term
2) although the return should be fairly steady the capital value of your investments will be much more volatile
3) you should have the skills to choose a range of different types of investment.  If you want just 1 fund you can get about 5% from a UK equity (shares) income fund.  See Man GLG UK Income as one of the best.  However I would not recommend just 1 fund investing purely in equity in one comparatively small area..

Do you actually want the income for immediate spending?  If you dont, then investing more broadly is likely to be a better option.

MX5huggy

Income investing is a strategy, I wouldn’t bother it excludes great companies that don’t pay dividends (US companies generally don’t).

ChrisFN66

Thanks for the replies. Ideally I'd like an income for immediate spending but it's not absolutely essential. I just don't know where to start or what to do. There's so many different options. 

gravel_2

You can also derive an income from selling investments that have grown in value... 

mebu60

ChrisFN66 said:

Thanks for the replies. Ideally I'd like an income for immediate spending but it's not absolutely essential. I just don't know where to start or what to do. There's so many different options. 

There are indeed and without more information on your overall position it's also hard to know where to start with suggestions.

You don't mention your income tax situation. Given the imminent tax year end on Saturday, if you haven't used your £20k ISA allowance for this year I'd suggest getting it in to an easy access Cash ISA that you can open pdq, maybe with your current account bank. That can then be transferred in to a Stocks & Shares ISA in 24/25 as well as another £20k new money. This assumes you are most likely to benefit from investing through a tax-free wrapper.

Nor do you mention your pension provision. I have a SIPP with Hargreaves Lansdowne and a recent S&S ISA with iWeb as well as an historical one with Fidelity. Other providers are available but HL and iWeb seem to work well and costs are reasonable. You will need to decide what to invest in but if you get yourself set up and post again you will probably get a range of suggestions. 

wmb194

ChrisFN66 said:

Hi, I’m completely new to investing so please forgive me if this post is ridiculous. Basically, I have £100k to invest. In what? Goodness knows! I’ve been reading about income investing which left me wondering if I played my cards right, could it be a realistic expectation to generate around £500 per month?

c.5% might be on the safer side and generally speaking the higher the yield, the higher the risk. There are income funds that pay interest monthly. If you play with the filters on Trustnet you can find them e.g., Invesco Monthly Income Plus. Otherwise you can find equity income ETFs, funds and investment trusts that pay dividends or interest quarterly.

If you literally just want reliable monthly interest another option is to open a fixed rate savings bond that pays interest away every month. The downside to these is that your money's usually locked up for the term.

https://www.trustnet.com/fund/price-performance/o/ia-unit-trusts-and-oeics?norisk=true&sortby=Yield&sortorder=desc&PageSize=75

Investment Trusts

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

gm0

There is a category error in your thinking.  You have some capital.  And want some form of regularish income. 

This has perhaps led you in a direct line to considering and asking about "income investing".  And "income funds".  Income funds are a particular thing. An investment strategy in their own right.  And are (generalisation incoming) focused in on particular stocks, countries and sectors where the individual investments inside such a fund - in stocks or bonds pay an income stream alongside any capital growth as may occur.  But the focus is on the income or dividends paid.  So for stocks in the fund this implies a selection bias towards stocks that pay dividends at all.  And also towards those that pay higher ones.  Which are found concentrated in a particular mix of countries and industrial sectors.  And found less often elsewhere.

The downside being that the limited focus on such stocks - can damage the diversification of your investment vs what else is available to you that doesn't pay dividends and so is excluded.  But which may enjoy excellent returns via capital gains (some justfied, some more speculative or theme and meme based).   It can expose you more (than you need to be) to particular risks in terms of the business cycle and in market sentiment around sectors.

The category error is that you *don't have to* constrain what you invest in.  In order to take an income from your invested 100k. It could be invested in a neutral "whole of global market" passive way, or any other "active fund" approach on sectors or regions or green transition or fossil fuels and cigarettes - literally in any way you choose.  "total return investing" - is one of the alternative approaches which just looks at the total gain - the capital growth and any income received together.  

amanda1024

For a guaranteed income around 5% (so £420 a month) you might want to look at savings accounts instead. Plum's cash ISA pays 5.17% at the moment, with interest available monthly (https://www.moneysavingexpert.com/savings/best-cash-isa/). There are also quite a few non-ISA savings accounts paying over 5%, although many of the fixed term accounts only pay interest annually/at maturity (https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/) Regular savings accounts give better rates but are limited in how much you can add each month (so best approach is to put a chunk of cash in an easy-access savings account and transfer over); they vary on whether the interest is paid monthly or annually (https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/).

Depending on your age you could also consider an annuity - £100k could buy a 65 year old an annuity of £6k, i.e. £500/month (according to L&G https://www.legalandgeneral.com/retirement/pension-annuity/pension-annuity-calculator/)

For a higher income you're trading potential gains for certainty - the higher the potential income, the lower the certainty you'll actually get it.

Linton

gm0 said:

There is a category error in your thinking.  You have some capital.  And want some form of regularish income. 

This has perhaps led you in a direct line to considering and asking about "income investing".  And "income funds".  Income funds are a particular thing. An investment strategy in their own right.  And are (generalisation incoming) focused in on particular stocks, countries and sectors where the individual investments inside such a fund - in stocks or bonds pay an income stream alongside any capital growth as may occur.  But the focus is on the income or dividends paid.  So for stocks in the fund this implies a selection bias towards stocks that pay dividends at all.  And also towards those that pay higher ones.  Which are found concentrated in a particular mix of countries and industrial sectors.  And found less often elsewhere.

The downside being that the limited focus on such stocks - can damage the diversification of your investment vs what else is available to you that doesn't pay dividends and so is excluded.  But which may enjoy excellent returns via capital gains (some justfied, some more speculative or theme and meme based).   It can expose you more (than you need to be) to particular risks in terms of the business cycle and in market sentiment around sectors.

The category error is that you *don't have to* constrain what you invest in.  In order to take an income from your invested 100k. It could be invested in a neutral "whole of global market" passive way, or any other "active fund" approach on sectors or regions or green transition or fossil fuels and cigarettes - literally in any way you choose.  "total return investing" - is one of the alternative approaches which just looks at the total gain - the capital growth and any income received together.  

In my view as a retiree dependent on investment income for a comfortable life is that there are serious disadvantages with relying on income from selling assets:

1) It requires much more effort.  Dividends and interest just turn up in your current account continually and completely automatically.
2) It requires more careful management because if you sell when prices are low you risk eating into the core assets required for future returns.  With income investing you can largely ignore capital values.  Dividends and interest are a lot more stable in £ terms than capital value.

Income investing and total return investing are not alternatives but should be seen as being complementary.  Best in my view is to use the right tools for the job.  Diversified total assets is the right tool for long term accumulation and growth eg for ensuing your income matches inflation in the long term. That does not mean it is the right tool for all the needs an investor may have.