1. A Guide toINVESTINGFOR INCOMEThere are many facets to your financialpersonality and many ways to generate income

2. A Guide to Investing for IncomeA Guide toINVESTINGFOR INCOMEThere are many facets to your financialpersonality and many ways to generate incomeThe recent volatility of global markets has tested the nerves ofthan the rate of inflation, however,even the most experienced investors, making it a difficult time the real spending value of yourfor individuals who rely on income from investments for someinvestment is likely to fall.or all of their needs.Fixed interestTo avoid concentrating risk, it is deposits, but there is some risk thatfrom bondsimportant not to put all your eggsthe value of your original investmentBonds are issued by governmentsin one basket by investing in justwill fall. (known as gilts in the UK) andone share or in one asset class. IfEquity Income Funds the income companies (corporate bonds) toappropriate to your particular situation comes from dividends paid to investors as a way to borrow moneyspreading capital across different shareholders. In return for some riskfor a set period of time (perhapsshares and different asset classes can to your capital, you may get a more5 or 10 years). During that time,reduce the overall level of risk.regular income than you would from the borrower pays investors a fixed cash, and that income, as well asinterest income (also known as aCreate a diversified your capital, may increase over time.coupon) each year, and agrees to payportfolioProperty Funds pay incomeback the capital amount originallyThere are opportunities to createfrom rents, but the value of yourinvested at an agreed future date (thea diversified portfolio throughinvestment can fall as well as rise. redemption date). If you sell beforeinvesting with fund managers who There are also mixed asset funds,that date, you will get the markethave the experience, talent andwhich invest your money in bothprice, which may be more or less thanrobust investment process that bonds and equities.your original investment.can withstand the ever-changing Many factors can affect the marketeconomic and financial climate and Generating incomeprice of bonds. The biggest fear isdeliver a return above inflation over that the issuer/borrower will not bethe medium to long term. Interest from cash or moneyable to pay its lenders the interestFunds are typically seen as a waymarket funds and ultimately be unable to payto build up a lump sum of money back the loan. Every bond is given aover time, perhaps for retirement, The income varies in line with the credit rating. This gives investors anbut they can also be used to provide interest rate set by the Bank of indication of how likely the borroweryou with a regular income. England. The funds investment is to pay the interest and to repay manager will aim to get the best the loan. Typically, the lower theType of income funds rate available, helped by that factcredit rating, the higher the income that, with large sums to deposit,investors can expect to receive inThere are four main types of funds can often get better rates return for the additional risk.income fund: than individual investors. The capital A more general concern is amount you originally invested isinflation, which will erode the realMoney Market Funds pay interest andunlikely to go down (subject to thevalue of the interest paid by bonds.aim to protect the value of your money.limits for each deposit under theFalling inflation, often associatedBond (Fixed Income) Funds payFinancial Services Compensationwith falling bank interest rates, isa higher rate of interest than cashScheme). If the interest rate is lower therefore, typically good news forA Guide to Investing for Income 3. A Guide to Investing for Incomebond investors. Typically, bondbut there are risks attached. ForLook at the fund yieldprices rise if interest rates areexample, the underlying properties This figure allows you to assessexpected to fall, and fall if interest might be difficult to let and rental how much income you may expectrates go up. yields could fall. This could affect to get from a fund in one year. InIf you invest in bonds via a fund, both the income you get and thethe simplest form, it is the annualyour income is likely to be steady,capital value. income as a percentage of the sumbut it will not be fixed, as is the caseinvested. Yieldson bond funds canin a single bond. This is becauseBalance your needalso be used to indicate the risks tothe mix of bonds held in the fundfor a regular income your capital.varies as bonds mature and new with the risksopportunities arise. The income from a fund may beDecide how frequentl youy higher and more stable than thewish to receive your incomeDividends from sharesinterest you get from cash deposited All income funds must pay incomeand equity income fundsin a bank or building society savingsat least annually, but some willMany companies distribute part account, but it canstill go up andpay income distributions twice aof their profits each year todown. There may be some risk toyear, quarterly or monthly, so youtheir shareholders in the form ofthe capital value of your investment,can invest in a fund which hasdividends. Companies usually seekbut if a regular income is important adistribution policy to suit yourto keep their dividend distributions to you and you do not need to cash-income needs.at a similar level to the previous in your investment for now, you mayyear, or increase them if profit levelsbeprepared to take this risk. Select income units/are high enough to warrant it.shares if you need Income funds ofcash regularlyRental incomethe same type areThe income generated in a fund isfrom property andgrouped in sectors paid out in cash to investors whoproperty funds The main sectors for income investorsown income units. If you choose theSome people invest in buy-to-let are: Money Market; Fixed Incomealternative - accumulation units/properties in order to seek rental (including UK Gilts, UK index-linked shares - your share of the incomeincome and potential increase in Gilts, Corporate Bond, Strategic Bond, willautomatically be reinvested backproperty values. Property fundsGlobal Bond and High Yield);Equityinto the fund. ntypically invest in commercial Income; Mixed Asset (ie.UK Equityproperties for the same reasons, and Bond) and Property.Need help?There are many facets to your financialpersonality. There are many ways togenerate income. To discuss the optionsavailable or to review your currentprovision, please contact us.A Guide to Investing for Income 4. This information sets out the basics of portfolio diversification. It is not designed to be investment advice andshould not be interpreted as such. Other factors will need to be taken into account before making an investmentdecision. Content of the guide featured is for your general information and use only and is not intended toaddress your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be, orconstitute, advice. Although endeavours have been made to provide accurate and timely information, there can beno guarantee that such information is accurate as of the date it is received or that it will continue to be accurate inthe future. No individual or company should act upon such information without receiving appropriate professionaladvice after a thorough examination of their particular situation. 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