investments with a regular income

[elainem]

Hi! Does anyone know if it is worth looking for investments which produce a regular income. Currently trying to sell property, if it sells for the AMV, was wondering if it is worth considering these type of investments. I need something with a regular income. Myself and two young childrne. Do people just take a precentage of the profits from the investment as regular income? How does this affect the capital over time? Basically, I'm looking at all options. So any advice greatly appreciated.

 

[LDFerguson]

Hi Elaine,

There are a number of types of investments that pay an income - here's a few examples:

1. Buying shares that pay a dividend - the dividend is the income.
2. Investing in a Managed Fund and setting up a regular income payment. Most such funds simply allow you to set up an income of a fixed amount. If that amount exceeds the growth on the investment you're eating into the original sum. So you need to monitor it.
3. Certain Managed Funds e.g. High Yield Equity funds allow you to withdraw only the dividend income in the fund, so you leave the original sum intact.

Liam D. Ferguson
www.ferga.com

 

[jpd]

4. Buy Government Bonds - interest is paid annually or semi-annually

 

[ClubMan]

4. Buy Government Bonds - interest is paid annually or semi-annually

Aren't bond prices (and yields?) inversely related to interest rates so in an environment of rising interest rates maybe this would not be the best investment?

Don't forget that if you invest a lump sum in a low charges open ended unit linked fund then you can encash units at any time in order to draw income from the investment.

 

[Taximan]

If you invest in an income distributing fund or segregated equities directly generally you will be paying Marginal rate tax on the proceeds.

What you might consider as an alternative is to go for a non-distributing Unit trust fund that will give you daily access or weekly access if you require. The advantage of this is cash flow. You will be taxed at 23% on Exit on any gains you make, however some of your distribution is treated as capital and therefore not liable to tax.

For example if you invest 100K and it rises by 10% and you decide to take a distribution of 20K. So you have a gain of 10/110 = 1/11th therefore only 1/11th of your 20k is deemed to be gain so your tax liability will be 20K * 1/11th = 1818 * 23% = €418. Therefore your net proceeds are 20,000 - 418 = 19,581. Obliviously this is a deferral of tax as your capital element will hopefully get smaller as your investment grows.

Investing this way gives you investment time to get going and give you the ability to derive an income without being walloped for tax.

Hope this helps.

 

[gonk]

If you invest in an income distributing fund or segregated equities directly generally you will be paying Marginal rate tax on the proceeds.

Dividends from the ISEQ 20 ETF (currently in the region of 2% p.a.) have tax deducted for Irish taxpayers at source at the rate of 20%. No further tax is due even for taxpayers on the higher rate. See here for details.