How do I invest for income? Holly answers Ellie's question

I am post-divorce with a good settlement which I have only partially invested. I completely empathise with the masculine nature of the investment market. I am very new to it and am working hard to understand the jargon and concepts. I am concerned to make sure that I invest the balance with an emphasis on income generation. Are there any courses you can recommend? I have sat in a number of meetings with accountants and financial advisers feeling somewhat patronised! I am sure that there are plenty of women in a similar position to me (aged 55!).

Hi Ellie,

Nice to hear from you.

Sorry to hear about your situation – divorce is always more cumbersome than I think anyone anticipates.

Your question is really interesting to me as you are so right – you are not alone. We are weighing up ideas at this end about how to help this very specific need – and audience.  Actually it’s also women in their 60s too which is a fairly recent development.

I do think a financial adviser would help – you can just pay for a block of time and see someone to talk through this stuff. You don’t have to sign up for life!

We consulted our friendly, non-patronising financial adviser Patrick Connolly of Chase de Vere. His view was that you would need to have realistic income targets (sadly, 3-4% is the norm now), and be willing to take a bit of investment risk. He believes the best approach is to use a range of different investment funds in order to spread risks. This is particularly important for income investors if they are relying on the income to maintain their standard of living in retirement

He recommended building a portfolio on three main pillars:

• The first is an equity income fund, which gives you access to good quality companies that are making regular profits and paying consistent dividends. That said, given that in the UK around 80% of all dividend income is produced by 15 companies and 50% by just 5 companies, it makes sense to also consider equity income funds that invest in some smaller companies. Have a look at some global and international equity income funds, too. Patrick recommends funds such as the Threadneedle UK Equity Income, Rathbone Income, Artemis Global Income and Newton Global Income.
• Fixed income (bonds) would be the second pillar. This includes government and corporate bonds and should have a place in most investment portfolios. Connolly says fixed interest has historically paid a steady level of income and isn’t usually subject to significant falls in value. However, he adds an important caveat: “The conventional wisdom of fixed interest being low risk doesn’t necessarily work today. Prices on many fixed interest assets, particularly government bonds, are looking pretty expensive, which means their yields are lower and they could potentially be subject to significant falls in the future.” So you have to be careful. He recommends the Henderson Strategic Bond, Jupiter Strategic Bond and the Rathbone Ethical Bond, which will help manage these risks for you.
• The final pillar would be commercial property, which should provide consistent and attractive levels of income. It also moves differently to stock markets, so can provide some protection during volatile times. That said, it is important to understand where a property fund invests. Some invest mainly in the shares of property related companies and don’t buy many, if any, actual buildings where as others will invest predominantly in real ‘bricks and mortar’ properties. His picks are the Henderson UK Property and M&G Property funds.

You also need to think about how to protect the income your investments earn. Firstly, if you hold funds in an ISA, the income will be tax-free. Consider using your £20,000 allowance each year to shelter as much as you can. Also – and this is a more complicated point – you also have a capital gains allowance every year, so it is worth considering some ‘growth’ investments as well. However, this is very much adviser territory and will depend on your specific circumstances.

In terms of useful tools, read up on ‘Equity Income’ funds. Hargreaves Lansdown has good content. Charles Stanley will also have lists of ‘Equity Income’ funds. Or Fidelity is also quite helpful. Once you have signed up with one of these platforms, you can invest in all the funds above and it’s no trickier than internet banking.

As for courses……………..I don’t know of any which have been recommended. The Pensions Advisory Service is a free Government helpline which takes general questions but won’t tell you where to invest. You will notice that newer schemes such as peer-to-peer lending don’t appear above. Be cautious of these. They promise high returns, but there is no such thing as a free lunch and all that!  And make sure you have enough in a cash buffer to tide you over if markets head south for a bit – you only lose money when you are a forced seller in sliding markets.

I hope that is a temporary partial help and you have inspired me to pick up discussions about running workshops/webinars for the 1000s of women in your situation.

Thanks and I hope it all works out,

Holly