If you’re looking to draw a regular income from your savings, it’s hard to ignore the need to invest it.
With bank interest rates so low in Ireland, you’d need something north of €25 million on deposit to draw a €50,000 net income from the interest!
That’s why many people have looked at investing some of their wealth to provide additional income.
Here, we outline five ways to make your investments pay.
Before we start though: remember that everyone’s circumstances are different, and Moneycube will always provide advice specific to your situation when making an investment recommendation.
Property investments can be attractive to investors looking for income. The rent can provide a relatively stable return, and on top of that there is the possibility of growth in the value of the property itself.
Investing via a property fund, or a Real Estate Investment Trust (REIT) enables you to spread your money across numerous properties (typically office parks, city office buildings, and retail property).
On top of that you avoid the hassle involved in being a landlord.
But… we all know property values can fall, rental yields can fall, and, compared to other asset classes, property is not liquid: you can’t sell property in a hurry if you’re looking for a decent price.
2. Shares that provide a dividend income
Dividend-paying shares are a good option for income for investors willing to manage their own portfolio.
Companies like CRH, BP, and Vodafone are known for their solid track record of paying reliable dividends to their shareholders year-in, year-out.
On the other hand, you’ll need to pay stockbroker fees, deal with your tax situation on dividends, and do all the work involved in being a DIY investor.
3. Investment funds with a regular payout
This is perhaps the simplest option. Here, your put your lump sum in an investment fund, and instruct the manager to sell units in that fund on a regular basis to provide you with income.
You can usually choose between either a fixed amount each month or year, or to pay a fixed percentage of your investment to you at regular intervals.
The key issue to balance here is whether the growth in your investment can keep up with the rate at which you’re drawing down income.
As always, there’s a balance between investment risk and return, which Moneycube can help you consider.
4. Income-paying funds
It’s also possible to invest in funds which aim to pay a regular income.
Fixed income funds, which invest in government and company bonds (such as this, for example), as well as equity funds focused on dividend-paying investments (such as this), can both provide regular income.
However, like option 2 above, you’ll be in the world of stockbroking fees and extra admin to monitor your investment and manage your tax situation.
Almost always used as a retirement investment, an annuity offers a fixed monthly income (usually for life) in exchange for a lump sum.
In the Irish market, you can select from a variety of options. For example, you can arrange for an income which will rise each year, for your surviving spouse to receive an income, or for a certain number of years’ payment to be guaranteed.
The problem? When you die, your annuity dies with you.
And annuity rates have plummeted in recent years, largely due to low interest rates.
A healthy 65-year-old paying €300,000 for an annuity can only hope for a monthly income of around €740 from an annuity these days – that’s around 3% annually.
It turns out that there are lots of ways invest your money to generate regular income.
As we said at the start though, everyone’s situation is different. All of these investments have different risk and reward potential, so talk to Moneycube to understand what’s right for you.