The colour of your money – using your investments for income

All / 22.04.2016

Whether you are retired, or perhaps in need of extra cash to support the kids, your investments can play a role in helping you with a regular source of income. There are a range of ways to access income, from directly in bonds or equities to using products like managed funds that invest on your behalf.

When planning to use your investments for income, there are many things to consider, they may include:

  • What level of income you are seeking.
  • Whether you still need to generate growth from your investments.
  • The level of risk you can afford to take.

 

With interest rates globally at historical lows, dividends may offer higher returns compared to fixed interest
payments on bonds, although this will depend on the company.”

 

Here are 4 ways you could use your investments to earn income.

Cash accounts
The standard Australian bank account offers interest payments on your money, which you could use as an income. Many institutions also offer higher interest rate accounts when you invest for an agreed period of time (like a term deposit) or add to your balance by a certain amount each month. Whether this type of account would work for you as an income tool will be influenced by your balance and income needs.

Bonds
Many bonds provide regular yield payments, which can be based on a fixed interest rate or on a floating rate which periodically resets to market value until the bond matures at which time the original value of the bond is returned to you.

Bonds can be issued by governments or by corporations and can range in quality and risk. In a country like Australia where there is a strong regulatory environment and a reasonably stable economy, government bonds are generally viewed as being the highest quality and most secure. The quality and risk involved in using corporate bonds tends to reflect the quality of each company issuing them.

Shares
Investing in shares that offer a consistent dividend stream can offer a source of income for investors willing to take on more risk in their portfolio. With interest rates globally at historical lows, dividends may offer higher returns compared to fixed interest payments on bonds, although this will depend on the company. Not all company shares offer dividends as some may choose to reinvest their profit into continued development of their business instead. Dividends can also vary within the one company over time, depending on its performance and outlook.

REITs
Some REITs offer dividends and these tend to be like shares in terms of variation across the level of risk involved or the potential dividend payments that may be on offer. As with shares, there is still the potential for loss of capital so your individual needs will influence whether this is appropriate for you.

 

If investing directly is not for you, there are also products that can invest across any of these options on your behalf and target an income stream such as annuities, managed funds, managed accounts or managed portfolios.

Whatever your income needs there are a variety of ways to invest for income beyond those specifically covered in this article. Choosing the right option will depend on your individual circumstances so please don’t hesitate to contact us first before diving into an income earning investment option

 

Article Source: Insights Magazine

Disclaimer
Past performance is not a reliable indicator of future performance. The information and any advice in this publication does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. This article may contain material provided directly by third parties and is given in good faith and has been derived from sources believed to be reliable but has not been independently verified. It is important that your personal circumstances are taken into account before making any financial decision and we recommend you seek detailed and specific advice from a suitably qualified adviser before acting on any information or advice in this publication. Any taxation position described in this publication is general and should only be used as a guide. It does not constitute tax advice and is based on current laws and our interpretation. You should consult a registered tax agent for specific tax advice on your circumstances