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Options for income seekers

In the current low interest rate environment you may need to look at a wider range of investment options to provide the income you need from your savings. Among the main options for income seekers are equities, corporate bonds and property.

Equities

• Equities (shares) offer investors the potential to benefit from the profits of companies by paying out dividends to shareholders – quarterly, six-monthly or annually.
• Strong companies may offer sustainable dividend growth and therefore provide the potential for a rising income – vital to counter the effects of inflation.
• The value of investments can fall as well as rise and investors may not get back the full amount invested.
• Investing in single companies can be risky, so investing in an equity fund is often less risky because capital is spread across a wide range of companies and actively managed by a professional fund manager.
  

Find out more about Equity funds

Corporate bonds

• Corporate bonds are loans to companies and will usually pay a higher return than Gilts (government bonds) as companies are generally seen as a higher risk than government borrowers.
• Companies borrow to strengthen their balance sheets and opportunities exist for attractive income levels from well managed portfolios.
• Companies that are deemed weaker than their peers or who have less of a track record usually offer higher rates of interest because of the perceived extra risk.
• Independent rating agencies (such as Moody’s, Standard & Poor’s and Fitch Ratings) identify the credit risk of companies and grade them accordingly.
• Bonds are often believed to be safer than equities during times of uncertainty but they are still risky – their value can drop, they can suffer the effects of inflation and they can even default. Bond values can fluctuate and you may not get back your original investment. Also, bond funds may not behave like direct investment in the underlying bonds themselves. By investing in bond funds the certainty of a fixed income for a fixed period with a fixed capital return is lost.
  

Find out more about Bond funds

Property

• Property is attractive for income investors as it can produce stable rental yields (which usually rise with inflation) and it offers opportunities for capital growth.
• There are two main ways to invest in property: directly, and through property securities (often within a fund).
• Within a balanced income portfolio, commercial property can provide extra diversification and the potential to reduce risk.
• Investments in property funds are subject to specific risks arising from investments in Real Estate Investment Trusts (REITS) and property related securities and you should ensure that you fully understand these before you invest.

Find out more about Property funds