In the eight years following the financial crisis the income generated by different assets has been falling with savers bearing the brunt of this trend. Bank of England policy, which has been to keep interest rates low and provide liquidity through quantitative easing, looks set to continue for the foreseeable future.
This policy has only made matters worse for income seekers as cash and gilts yields have continued to fall. However, there are still income opportunities out there and many funds are offering a yield of over 5% and you don’t need to take huge amounts of risk.
It is possible to build a portfolio of investments which could generate a decent income particularly in a low inflation, low growth world.
Spread it about – Getting your income from a broad number of different sources will reduce the volatility of the income you receive and protect against one source drying up. Income diversification is important if you are dependent on that income for paying the bills and day to day living expenses.
Be wary of high yields – Don’t get caught out chasing the highest yielding stocks or funds, a high yield could be a great opportunity but it could also mean that there is something wrong with the investment; either the dividend will be cut or the business is in trouble.
Look for growing dividends – If you can, look for companies which have smaller but growing dividends. As a company grows its dividends it will boost the share price, as it attracts more investors, helping to grow your capital.
Fidelity Enhanced Income – Income is taken from two sources. The core of the fund run by Michael Clark is a traditional income strategy investing in blue chip UK companies which tend to have attractive and consistent dividends. The fund is co-managed by David Jehan, he runs the other income generating strategy, using derivatives to boost the income yield. He sells call options and uses the proceeds to boost the income. Such a strategy does reduce the capital growth potential of the investment, but provides a significant boost to income. Given the conservative approach of the managers this fund tends to protect investors better in falling markets and is less volatile than the UK Equity Market as a whole. The historic yield is 6.89%.
Invesco Perpetual High Yield Bond – Managers Paul Read and Paul Causer are highly experienced and believe the key to success is on knowing what information is relevant at what time. The managers combine their economic outlook with stock picking skills to identify bonds which look attractively priced. Whilst the fund is predominately investing in European high yield bonds the managers can hold as much as 30% in Corporate bonds. The historic yield is currently 5.88%.
Schroder Global Real Estate Securities – Managers Tom Walker and Hugo Machin use their analysis of the global economic landscape to determine the best geographical opportunities and combine that with detailed stock analysis to pick the best investment opportunities. Focus is primarily on large cap property companies which offer the greatest liquidity. As the fund invests in property shares and not bricks & mortar investors don’t share the recent liquidity issues seen in other property funds but in the short term will experience equity like volatility. The fund has an historic yield of 5.35%.
Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest.