View more on these topics

Phil Wickenden: Maximise your income potential

Income investors have been feeling the pinch for years. With interest rates at near-historic lows, many have been forced to take more risk with their money to obtain decent yields. This demand for yield has had the effect of driving up prices of assets that pay a reliable income.

Markets may remain testing, but advisers identify some key things investors can consider to maximise income potential while ensuring they are not risking too much with their capital. In our latest research round, the following tenets were shared:

1. Multi-asset approach for income
Advisers identify the importance of diversifying investments across asset classes. This allows investors to buy into higher-paying assets but ensures not all capital is tied up in riskier areas. Beyond bonds and equities, advisers are urging investors to consider assets such as property, cash or infrastructure. Multi-asset investment trusts with an income focus are also flagged as a good way to gain diversification.

2. Overseas investment trusts
The UK has historically been a good place to invest in equities with decent dividends. But, recently, there has been an increase in the number of global trusts and funds with an income focus. More overseas companies are now focused on using profits to make dividend payments to investors. By investing in a mix of UK and global trusts, investors can further diversify their holdings.

3. Thinking flexibly to protect investment capital
If investors take a regular fixed income from their portfolio, this can magnify capital losses when markets fall. Investors should be prepared to reduce the income taken to preserve capital. If not, they may have to take a larger slice of the remaining funds to meet income needs, further depleting their portfolio.

4. Phasing pay dates in investment
Advisers are urging investors to think about how regularly their investments pay an income. Is it annually, every six months or more frequently?

5. Reviewing investments
Advisers agree investments must be reviewed regularly. Have the investments paid the income clients expected? If they underperformed, advisers may want to consider rebalancing portfolios.

6. Reinvesting surplus income in investment
Investors should reinvest surplus income payments to boost overall returns. The power of compounding cannot be overstated by advisers and, over time, this should help grow capital, delivering a more sustainable long-term income stream.

7. Do not overlook capital growth
If investors want their retirement saving to provide a sustainable income for 30-plus years, it is important to ensure capital is growing. Focusing solely on investments that pay the highest yields potentially puts this capital at risk, which could jeopardise income received in the long term.

Phil Wickenden is managing director at Cicero Research

Recommended

SJP extends DFM service with acquisition in Ireland

St James’s Place has acquired pensions and investment firm Harvest Financial Services to extend its discretionary fund management offering to new clients in the Republic of Ireland. SJP acquired DFM Rowan Dartington in 2016, which serves UK and Hong Kong clients. SJP says “complementary capability” from Harvest will see these services rolled out to Irish […]

Appeal-Court-High-Court-Building--700x450.jpg

State pension court showdown set for summer

A judicial review about changes to the state pension age for millions of women born in the 1950s will take place from 5 to 6 June. The Department for Work and Pensions has confirmed that last November’s decision by the High Court to grant permission for a judicial review will go ahead in the summer. […]

1

Standard Life advice arm buys £230m Northern Ireland firm

Standard Life Aberdeen’s financial planning and advice business, 1825, has today announced it will acquire the wealth management arm of BDO Northern Ireland. BDO Northern Ireland was established over 25 years ago and has assets under advice of around £230m. Its wealth management team specialises in all aspects of wealth planning and support from corporate […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com