We all want it, but do you know how to get it?

Published 7 September 2010

We could all probably do with some extra pocket money and for many investors investment income is a far more fundamental requirement.

Interest rates have been low since the credit crisis and it is now far harder to make any money from cash alone than it might have been two or three years ago. But there are still many investment options that can help you to generate income from your portfolio.

After interest earned from cash, perhaps the most traditional way for investors to create an income from their portfolio is by investing in stocks that pay a dividend. The key difference is that investing in stocks puts your capital at risk and you might get back less than you invested, but you can still certainly earn a crust from the bread and butter of equities and dividends. Read what John Cotter had to say on the matter in his latest Corner:  

• The art of dividend investing - how to identify stocks that pay high dividends and how to balance choices in your portfolio

• Alternative investment options – a focus on Exchange Traded Funds (ETFs) that can pick the stocks for you.
  
  

To find out more, read John’s corner “Investing for income”.

Fixed income

After cash and dividends from equities, the next most popular port of call for investors looking for income is often fixed income - specifically gilts and bonds - which have regular income payments built into their structure. These became very popular in the aftermath of the credit crisis, as under the circumstances, investors were attracted to their combination of income and relative stability of value. You may still be putting your capital at risk.

The recent Eurozone sovereign debt crisis has rattled investor confidence in fixed income, as the risk remains that both companies and governments can default. However, fixed income is still a key way to earn income from your investments and should be considered as part of an earnings strategy.

The gilts and bonds section of our website provides an introduction to these assets and also includes a link to our Fixed Income Microsite.  This is a great resource for the novice fixed income investor (see the ‘Learn about Bonds’ section).

What are the specifics?

For some investors, selecting one, or even a combination, of gilts and corporate bonds can be daunting. In this case, a single product, designed to do the selection for you, may be appealing, although the income and capital value of these investments can fall as well as rise and you may lose capital.

In John’s ‘Corner’ on income he mentions one such option, the iShares Markit iBoxx £ Corporate Bond (SLXX).  This ETF tracks the performance of the Markit iBoxx £ Liquid Corporates Long-Dated Bond Index, and offers exposure to 40 of the largest and most liquid Sterling-denominated corporate bonds with investment grade rating.

Funds

Another alternative would be a managed fund, where the fund includes fixed income investments. The added bonus of this approach is that in addition to generating income, most funds will also aim to achieve capital growth, which can never be a bad thing!  Choosing such a fund from a very broad range can be a daunting task; however, using the Barclays Stockbrokers Fund factsheet search will help.

For example, you could run a search for funds from the Sterling Corporate Bond sector that have a Financial Express three crown rating.  This returns 13 funds that meet these criteria, which you can then investigate further.

 

 

 

If income is on your investment agenda, there are many ways to earn a crust from your portfolio.

Barclays Stockbrokers does not give advice.  If you are in any doubt as to the suitability of direct investment into gilts and corporate bonds, or into ETFs and managed funds linked to gilts and corporate bonds, please seek independent financial advice.

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Page last updated: 7 September 2010

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