What is Investing for Income?
Income investing is often thought of as a way of creating an income in retirement. It is also a valid strategy to generate an ongoing stream of income at any stage of an investor’s life – whether that’s to boost your existing income, to accommodate for unexpected life changes, or to cover a known expense such as a holiday.
Investing for income involves investing a capital sum, from which you then make withdrawals at regular intervals (e.g. monthly or quarterly). These withdrawals may be for
- a fixed amount – a set monetary amount that doesn’t change over time, or
- variable – for example, taking the ‘natural income’ generated by the investments depending on your requirements. Depending on the amount you withdraw and market conditions, the original capital sum may be left untouched or reduced over time.
Ellis Bates Financial Advisers Income Portfolios
At Ellis Bates, we appreciate that every client is different, and as such you need a portfolio to meet your individual circumstances. We provide a range of portfolios to suit different attitudes to risk and objectives, whether it is for capital appreciation, income generation, or a combination of the two.
If you require a regular income, our Income portfolios may be an ideal investment strategy.
Our Income portfolios are invested in a diversified range of assets (e.g. bonds and equities), by geography/region, company size, investment style and fund house, among many other considerations, to ensure that the income generated by your portfolio is not reliant on any single area of the market.
We seek stable investments that are paying out relatively reliable dividends on a regular basis.
That said, in our view, it is important to look beyond the yield. This is because companies generally set their dividend as a monetary amount.
Example:
If a company is paying £1 in annual dividends and its share price is £25, then its dividend yield is 4% (i.e. £1 / £25).
However, if the share price falls to £10 for whatever reason, the dividend yield is now 10%.
If this share price fall relates to something fundamentally weak with the company, then this may not bode well for the dividend, which the company may need to cut or suspend entirely in order to shore up its finances until conditions improve.
One key consideration is debt levels (also called gearing or leverage). Companies with higher levels of debt may struggle to keep paying a dividend over the long term, particularly if that debt is being used to pay the dividend. As interest rates rise, the debt may become much more expensive to service, which could put the dividend under pressure.
Each of our funds must make distributions every six months or more frequently (e.g. quarterly or monthly), so that we can pass these payments onto you on a regular basis, as needed. If you choose to withdraw the natural income from your investments, the amounts may fluctuate over time due to these differences in the distribution frequencies.
As well as paying a dividend, our blend of funds has the potential to deliver capital growth over the medium to long term.
Our Investment Services
We put you, and what you want your money to achieve, at the very heart of everything we do. The most important part of our investment philosophy is listening to your dreams and aspirations. Find out more about our investment services and see how our in-house Investment Team can help you.