Us­ing funds to pay your monthly bills

We get rec­om­men­da­tions from the ex­perts on funds which pay div­i­dends 12 times a year

Shares - - CONTENTS -

THE LEAST DI­VER­SI­FIED FUNDS TEND TO BE THE MOST UN­RE­LI­ABLE, OF­TEN DE­PEND­ING FOR IN­COME ON A SPE­CIFIC GE­OG­RA­PHY OR SEC­TOR OF THE MARKET

Un­less you’re re­tired, most of us are used to get­ting a monthly pay packet with cash paid into our cur­rent ac­count which is then used to pay all our reg­u­lar bills.

Once you’re in re­tire­ment, the loss of this in­come stream can be frus­trat­ing to some. One so­lu­tion is to put some of your sav­ings in in­vest­ment funds which pay div­i­dends once a month, as a source of money to help pay the bills.

These funds don’t all pay ex­actly the same amount of money each month and div­i­dends are never guar­an­teed pay­ments.

Some funds strive to make equal pay­ments through­out the year and hold back some in­come so they’ve got a buf­fer if times get harder. This is call­ing smooth­ing. More cash may there­fore be paid out to­wards the end of the year if the fund does not face any short­falls and there is ex­cess money in its div­i­dend pot.

EX­PERTS GIVE THEIR BEST FUND IDEAS

Chase de Vere’s head of com­mu­ni­ca­tions Pa­trick Con­nolly sug­gests in­vestors should look at Fidelity Ex­tra In­come (GB00B41M2W81), which is man­aged by a strong team led by Ian Spread­bury.

‘It typ­i­cally in­vests 60% in

in­vest­ment-grade bonds and 40% in high yield bonds, has an ex­cel­lent long-term record and pays a com­pet­i­tive yield, which is cur­rently 3.7%,’ says Con­nolly. He also flags Thread­nee­dle UK Monthly In­come (GB00B8BV4509) for its ‘con­sis­tent record’. The fund is tar­geted at in­vestors who value a higher and more reg­u­lar in­come with a 4.3% yield.

Hen­der­son Fixed In­ter­est Monthly In­come

(GB00B7GSYN71) is an­other one for in­vestors to con­sider, ac­cord­ing to Square Mile re­search man­ager John Mon­aghan.

The man­agers of the fund, Jenna Barnard, John Pat­tullo and Ni­cholas Ware, tar­get an in­come yield of around 6%, al­though Mon­aghan says this is not guar­an­teed and varies due to market con­di­tions.

He adds the smoothed pay­ments from the fund are use­ful for peo­ple look­ing to

‘match in­come pay­ments with cash out­go­ings’ such as bills.

Charles Stan­ley pen­sions and in­vest­ments an­a­lyst Rob Mor­gan be­lieves funds in­vest­ing in gov­ern­ment bonds should of­fer a more pre­dictable in­come stream com­pared to those in­vest­ing in eq­ui­ties.

WHAT IS IM­POR­TANT TO CON­SIDER WITH MONTHLY DIV­I­DEND FUNDS?

The man­ag­ing direc­tor of Whitechurch Se­cu­ri­ties, Gavin Haynes says it is more im­por­tant to find out where the un­der­ly­ing fund is in­vested and whether it fits your risk pro­file rather than get hung up on the fre­quency of div­i­dend pay­ments.

There is a dan­ger the in­vest­ment process of a monthly div­i­dend pay­ing fund will be driven by tar­get­ing as­sets which pay out in­come at cer­tain points in the year rather than those which are of the high­est qual­ity.

Haynes rec­om­mends that in­vestors spread the risk by in­vest­ing in a port­fo­lio of funds that are di­ver­si­fied across dif­fer­ent as­sets classes. He high­lights Artemis Monthly Dis­tri­bu­tion (GB00B6TK3R06), In­vesco Per­pet­ual Global Tar­geted In­come (GB00BZB27M05)

and M&G Episode In­come (GB00B7FSJ224), cit­ing strong man­age­ment and well-bal­anced port­fo­lios.

LACK­ING DI­VER­SI­FI­CA­TION

Har­g­reave Hale in­vest­ment man­ager Ian Ka­vanagh warns the least di­ver­si­fied funds tend

IT IS MORE IM­POR­TANT TO FIND OUT WHERE THE UN­DER­LY­ING FUND IS IN­VESTED AND WHETHER IT FITS YOUR RISK PRO­FILE RATHER THAN GET HUNG UP ON THE FRE­QUENCY OF DIV­I­DEND PAY­MENTS

to be the most un­re­li­able, of­ten de­pend­ing for in­come on a spe­cific ge­og­ra­phy or sec­tor of the market.

If a sec­tor hits a rough patch, div­i­dends may be cut and there will not be al­ter­na­tive as­sets in the port­fo­lio to make up the dif­fer­ence. As a re­sult, the in­come from the fund could fall. He flags Stan­dard Life UK Real Es­tate (GB00BJZ2V336) as a monthly div­i­dend payer that lacks di­ver­si­fi­ca­tion.

Ka­vanagh is also cau­tious about in­vest­ing in Ja­panese or emerg­ing mar­kets for a re­li­able in­come as few have West­ern style pro­gres­sive div­i­dend poli­cies. This im­plies the div­i­dend is not a pri­or­ity if bal­ance sheets come un­der pres­sure.

Among the in­vest­ment

man­ager’s favourites is Thread­nee­dle Ster­ling Short Dated Cor­po­rate Bond Fund

(GB00B7SH5738) al­though it has a mod­est yield of 1.7%.

Mor­gan says in­vestors should be wary of funds that use ‘un­con­ven­tional means’ to en­hance their in­come by us­ing de­riv­a­tives.

While these fi­nan­cial in­stru­ments can boost in­come, it ar­guably also adds an ex­tra layer of risk to your in­vest­ment.

Funds are a great source of in­come for in­vestors, but you should al­ways look un­der the bon­net to en­sure the un­der­ly­ing in­vest­ments can de­liver the con­sis­tency of in­come pay­ments to meet their cur­rent and fu­ture needs and that the in­vest­ments are a suit­able fit for your risk ap­petite. (LMJ)

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.