A Guide to Income Investing: Property, bonds, and equities

Property

In recent years, there has been a growing demand for rented property as the cost of
housing has risen. Many investors have profited from the buy-to-let market, buying residential property that they then let out in order to generate a rental income. However, property is not as liquid an investment as some others. There is also the risk of periods without income between lets and the ongoing costs of maintaining the properties.

Income Investing

More significantly, the taxation burden on UK buy-to-let investors and the properties themselves increased in 2016 following a government rule change. There was a sharp increase in stamp duty payable by homeowners purchasing a second home, as well as an increase in the level of taxation faced by landlords buying to let. These changes, together with stricter lending criteria imposed by lenders and wider economic uncertainties, stand to make investing in property less attractive than it may have been.

Fixed Income Securities/Bonds

A bond is a loan that the bond purchaser, or bondholder, makes to the bond issuer.
Governments and corporations issue bonds when they need to raise money. An investor who buys a bond is lending money to the government or corporation.

Like a loan, a bond pays interest periodically and repays the principal at a stated time, known as the ‘maturity date’. Certain government securities are regarded as the most secure, though corporate bonds can pay higher rates of interest depending on the deemed creditworthiness of the issuing companies.

Over the long term, shares have tended to provide a greater total return, but bonds are generally regarded as less risky. In the event of bankruptcy, a bondholder will get paid before a shareholder.

Equities

By investing in equities, savers can back companies which have potential to pay out
significant dividends – a share in the profits – to shareholders. There are many such companies which have historically provided not only reasonable dividends but a track record of growing profits and consequently improving those dividend payments over time.

It is also possible to grow your original capital if the share price increases in value over the time you are invested, although it may go down as well as up along the way. Investments in equities can be volatile. Their values may fluctuate quite dramatically in response to the results of individual companies, as well as general market conditions.

Do you have an honest understanding of what you want to achieve?

As yields from cash and term deposits remain near historic lows, the search for income is a top priority for many investors. Income-seeking investors continue to face the dilemma: in a low-interest-rate world, where do I generate the income yields I need? There are a number of different investments available that could produce an income for your requirements. To discuss which is right for you, please contact us.


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