Funding your lifestyle
GENERATING the maximum income possible from your savings and investments is vital in retirement, but it is not easy with interest rates still languishing near record lows.
However, a number of investment funds offer yields of 5 or 6 per cent a year, far more than you can get on cash. They typically generate this from a combination of company dividends and corporate bonds, so this is higher risk, especially with stock markets currently choppy, but it may still be worth taking a chance with some of your money to grab such comparatively generous levels of income.
HIGH INTEREST
Stock markets fell sharply in October and again in December and Ryan Hughes, head of active portfolios at AJ Bell, warned there is more uncertainty ahead: “However, UK stocks look tempting because they offer healthy dividends, with the FTSE 100 forecast to yield 4.9 per cent this year.”
You can buy individual stocks and shares, but Hughes said most people should spread their risk with a fund that may contain dozens or even hundreds of different companies. He recommended six funds that all yield 5 per cent or more, though you should only buy if you plan to hold for at least five years, preferably longer, to overcome short-term volatility.
They can all be bought inside your £20,000 Isa allowance, so you can take the income free of tax. His first tip is Artemis High Income, which yields 5.9 per cent from a portfolio of UK, US and European bonds paying a fixed rate of interest, with some exposure to shares. “This is a global fund that aims to deliver rising income and capital growth over the longer term,” he said.
LOOK EAST
Unicorn UK Ethical Income yields 5 per cent from a portfolio of 50 small and mediumsized UK companies. Hughes said: “This fund was launched recently and will appeal to those who want to invest with a clean conscience in socially responsible firms.”
His next tip is Janus Henderson Far East Income, an investment trust that yields a generous 6.6 per cent: “Companies in the Asia-Pacific region are rapidly increasing their dividends and total returns have averaged 12.5 per cent for each of the past three years.”
Another fund, TwentyFour Income, yields 6.2 per cent from a mix of European and UK mortgage-backed securities, car loans and credit cards. The fund also invests in floating-rate bonds, where the interest increases as rates rise, which means the yield could rise over time. “It aims to pay income of 6 per cent and is delivering just above this at the moment,” he said.
TOP YIELDS
Hughes also tips Kames Property Income, which invests in smaller commercial properties outside London, including warehouses in Birmingham, Brighton and Norwich, and currently yields 5.2 per cent.
His final choice is Woodford Income Focus for a concentrated portfolio of UK stocks paying generous dividends, such as British American Tobacco and Taylor Wimpey.
It is run by Neil Woodford, until recently the UK’s most popular fund manager. His star has fallen in the last couple of years, but Hughes has tipped him to fight back: “Woodford has rebounded from periods where his style has been out of favour before and his fund yields a generous 5.8 per cent.”
FEEL THE BOND
Laith Khalaf, senior analyst at Hargreaves Lansdown, tips Royal London Sterling Extra Yield Bond Fund, which currently yields
5.67 per cent: “It is more important than ever to pick experienced bond fund managers with good long-term track records and this is one of our favourites, offering the potential for a high income, but with a higher risk.”
Chase de Vere financial planner Patrick Connolly said before choosing any fund you should check it blends in with your existing savings and investments: “You need a spread of different asset classes, such as shares, bonds, cash and property, so that if one underperforms another may compensate and make good any losses.”