Investing for Income
Over the past 10 years the UK has experienced historically low interest rates, leading investors looking for alternatives to traditional cash deposit saving accounts. This November saw the first interest rate rise in 10 years however it is still a long way from the high rates prior to the 2007 crash.
Getting Started
When devising an investment strategy, it is key to have clear and realistic objectives in place; doing so will help you to plan the necessary steps required to meet your investment goal.
It is important to consider:
- How much is available to invest?
- How much income do you need?
- How much risk are you prepared to take?
If estimating how much income you will want to generate for retirement a good starting place is between half to two thirds of your final salary. Your expenses will change once you retire as you cut down on some costs such as commuting however money spent on social activities and holidays are likely to increase.
It is a good idea to build in time to your strategy, to account for market fluctuations, a good rule of thumb is at least 10 years before you would like to begin receiving the income.
Property
Investing in property has traditionally been regarded as a relatively safe investment with regular income received in the form of rental payments and the value of the property rising year on year.
Despite recent increases in stamp duty and changes to taxation on buy-to-lets which were predicted to deter investors, the demand for private rented accommodation is still growing. Without an increase in housing stock it is likely that landlords are going to continue to face a strong demand and their property values to continue rising.
To discuss ensuring your buy-to-lets are still an attractive investment opportunity speak to our Mortgage department who will be able to guide you through the process.
Fixed Income Securities/Bonds
These are issued by either governments or corporations when they are looking to raise money. The investor enters into a set term where they are repaid their principal investment at the maturity date and interest is paid periodically throughout the term. While government bonds carry low risk, they provide low returns while corporation bonds carry a higher risk but are likely to provide a higher level of return.
Equities
Equities give investors the opportunity to share in the profits of a company by receiving shareholder dividends.
At KDW we would typically invent into a fund which contains many different equities from various sectors and carrying different levels of risk, thus diversifying and balancing your portfolio. If the company you have equities in grows then your original capital will grow. It is important to be aware that there is no guarantee that the value of your investment won’t fall if the company doesn’t break a profit.
Banks and Building Societies
For those that are particularly risk averse banks traditional cash savings accounts are still viewed as the most attractive option because the monetary value will not go down, in such if you place £10,000 into a traditional saving account the value won’t go below £10,000 until you make a withdrawal. Although inflation can mean that the actual value is eroded. Compared to other investment options you aren’t likely to experience considerable growth on your investment especially whilst interest rates are so low.
All of the options mentioned in this article are viable investment options but their suitability for you will vary depending on your objectives, goals, attitude to risk and financial circumstances. An independent investment adviser at KDW will be able to discuss your investment goals with you and create