Three things your clients need to know about income investingContributor Stephanie Flanders
Income investing is nothing new. In fact, it’s been a key theme in the investment world for decades. Many clients stand to benefit from using their savings to provide an income - either to supplement an existing income stream, dampen the effects of market volatility, or reinvest the income payments for long-term capital growth. But with interest rates at record lows, it’s time for clients to look beyond traditional income sources to generate the income they need.
Typically, an income can be achieved by focusing on investments that provide regular and consistent payouts, such as bonds and dividend-paying company shares. There are several reasons your clients might think about income investing:
Boosting existing income
Many of us rely on our savings to give us an income, perhaps to bump up a pension or to help with household bills. Income investing can help to offset the impact of low interest rates by giving clients easier access to more attractive income streams.
Reinvesting for long-term capital growth
Income payments can be a significant contributor to total returns over time. Reinvestment of regular income distributions can help to boost long-term gains through the power of compounding, so income investing is a powerful way to save for the future.
Cushioning market volatility
Income investing can help to cushion returns through periods of market volatility. Although price returns will vary from month to month, a regular and consistent income stream (while not guaranteed) can potentially add stability to an investment portfolio.
Three things you need to know
Your clients might want to take the income produced, reinvest it, or a bit of both. Whatever their objectives, the key is to seek out investments that can make regular and attractive income payments, at a level of risk that they are comfortable with. So how can you help your clients make income investing work for them? First, there are three key things you need to know:
1. Don’t count on cash
Many people rely on their savings to provide them with an income, particularly once they hit retirement. But keeping savings in a bank account or investing in government bonds could mean making do with an income that is much lower than they need. In fact, thanks to record low interest rates, the value of £10,000 invested in cash 10 years ago would have lagged behind the rate of inflation, leading to a loss in real terms.
2. Look beyond your home turf
Restricting the investment universe to specific asset classes means your clients are missing out on crucial return potential. And a bias towards the domestic UK market can limit investment choice just as much, given that this market represents just 8% of global equities. For clients who are ready to venture beyond the UK market in search of income, a broader global opportunity set can help lower volatility by enhancing diversification at an asset class and sector level.
3. Maximise diverse sources of income and return
In today’s low-rate environment, the ability to generate sustainable income relies on exposure to a broader and more global opportunity set than ever before. Multi-asset income funds are designed to do offer just that, investing flexibly different high-yielding, income-producing assets, including dividend-paying equities, corporate and emerging market bonds, real estate securities and convertibles.
Multi-asset income funds give clients the opportunity to:
- Build and preserve wealth.
- Reduce risks to capital.
- Achieve an inflation-beating income.
- Reduce the risk of outliving their assets.
What’s more, because they can take a global approach, multi-asset income funds are well placed to identify the best income opportunities, wherever they are in the world. This broad diversification across regions and asset classes means that these specialist funds can help investors maintain an attractive level of income through a broad range of market conditions, while managing portfolio volatility.
The JPM Multi-Asset Income Fund is designed to help your clients generate a regular, attractive level of income, by continually investing in new and alternative sources of income across the globe.
This fund pursues sustainable growth from emerging markets by focusing on the dividend-paying stocks that have been proven to outperform over the long term.
Please be aware that this material is for information purposes only. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all-inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. JPMorgan Asset Management Marketing Limited accepts no legal responsibility or liability for any matter or opinion expressed in this material.
The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.