Are you at the stage of life where you have built up your wealth and now want to take an income from your investments?

Income from your investments means different things to different people so I thought it best to explore the different ways you can receive cash, and what sort of amount you could expect.

Ways of generating an income from your investments

When you start needing money out of your investments you will probably think of the money coming out as ‘income’. Perhaps replacing the income you were receiving through work.

But in the investing world, income from your investments generally means one of two things:

  1. Dividends from the equity (stocks and shares) part of your portfolio.
  2. Interest from the fixed interest (bonds) part of your portfolio.

Whilst you are saving and accumulating wealth, the dividends and interest you earn are usually re-invested back into your investments so you rarely see it or notice it.

Before you go about receiving money from your investments it’s important that you consider what sort of money you need.

Ask yourself:

  1. When do you need the money? Every month? Yearly? Ad-hoc?
  2. What amount do you need? Fixed or variable?
  3. Do you need to retain a large sum (capital) for a future need?

Type of income from your investments

There are three ways to generate an income from your investments.

#1  Receiving dividends and interest only

This is true income from your investments. You are not selling any shares or units but just receiving the income they generate.

Your capital could still rise and fall in value with share prices changing all the time.

The amount of income will be variable and the frequency ad hoc as different companies announce their dividends at different times.

The amount you could expect could be between 1% and 4% of your investment portfolio depending on the risk you are taking. This could certainly be higher if you were taking more risk.

#2  Making capital withdrawals

You would be selling shares or units.

Dividends and interest continue to re-invest into buying new shares and units.

You can fix the amount of withdrawal you make so your ‘income’ is more certain and you can choose how often to make the withdrawals.

The difficulty here is making sure the rate of withdrawals doesn’t mean your money runs out sooner than you thought or needed.

#3 – A mixture of both

You could request to receive the dividends and interest earned on your portfolio and then store these in a cash holding account. This could build up and you then take regular or ad hoc amounts out of the cash holding account only.

This way you can increase the certainty and frequency of the ‘income’.

If you want to get you money working harder and generating a decent income for you then why not take advantage of our free 15-minute call. You can speak to a Chartered Financial Planner who will listen to your situation, give you an outline of what you need to consider and guide you in the right direction.

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.