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Investing for Income

Generating an income on savings and investments isn’t easy when interest rates are so low as to have almost flatlined. Indeed in 2008 rates of interest sank to their lowest level in more than 300 years.

The difficulty is that as a rule of thumb the higher the return on an investment the riskier it tends to be. Those who wish to invest their live savings will naturally be reluctant to do so if there is anything beyond a strictly theoretical chance that their value will decline or, worse still, be wiped out entirely.

At the time of writing easy-access savings accounts are returning up to 3% in interest, whilst at a notice account one can anticipate a slightly higher return at up to 3.3%.

For a slightly higher yield when investing for income but still without significant risk there is the option of a fixed interest account, which ordinarily is accessed through a special bond fund. This in effect constitutes a loan, either to the government or to a private entity. In the United Kingdom government bonds are known as gilts. They are acquired wither through a stockbroker or directly from the Debt Management Office.

Corporate bonds operate on a similar principle but, being in theory less secure than government bonds, the return on them tends to be higher. Needless to say some issuing companies will be more dependable than others and so they are each rated by specialist ratings agencies. When investing for income it is of crucial importance that some note is taken of how a particular corporation is rated. Those with poor ratings should possibly be avoided, regardless of their promise.

Another way of avoiding too much uncertainty when investing for income is to spread one’s risk by holding a basket of equities or assets. As the standing of some companies declines so others will grow, and by holding a wide portfolio of stocks any losses sustained due to bad investments are likely to be negated or at least offset by those that have demonstrated more success.

The other essential factor involved when seriously investing for income is the necessity to reinvest. According to the Barclays Equity Gilt Study £100 invested in the UK Stock Market in 1945 would have returned £227 by the end of 2011 without dividends having been reinvested, or £4,027 with – a quite dramatic difference.

Although it is always good to be cautious, a little research into the various methods and means available to those considering investing for income will show that making a reasonable return on one’s starting capital is not tremendously difficult, and usually quite safe.

If you are considering investing for income, check out the offers from companies such as those above to see what investment for income opportunities are available to you. Also seek financial advice prior to investing to fully understand the risks involved.

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