What options are available if I need income?
Holly Warburton talks to the Guernsey Press Business Panel
This is a question we hear a lot, particularly given the current environment of low interest rates, which has meant that no meaningful, if any, interest is generated from a bank account. As a result, many savers have been forced into investing; becoming what we refer to as a ‘reluctant investor’, in order to obtain a higher income stream.
Bonds are normally the go-to asset class when income is mentioned. These are essentially contracts, where an investor lends money to the government or a corporate entity, for a stated period of time, in return for a fixed or variable rate of interest – a ‘coupon’, which is paid at regular intervals. The size of the coupon depends on the credit worthiness of the issuer and the length of the contract amongst other factors.
Alternatively, many equities also pay out income, in the form of a dividend. Unlike bond coupons, dividends are neither fixed nor an obligation, but companies can, if they wish, pay some of their earnings out to shareholders.
There is also a variety of managed income-focused funds available; in general these provide a diverse exposure to income generating assets, which may mitigate some of the risk in selecting specific bonds or equities.
GP Business Panel 22 June 2017