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Investing for Income – The best Investments for earning monthly dividends

People invest not only to grow their investments into a nice nest egg or retirement fund but also to earn an income. If investing for income is something you are considering, this blog will be of interest. In it, we discuss ways to secure a passive income stream and the best investment in 2023 to help you achieve your goal.

☢️ Does investing for income come with risk?Absolutely, all investments come with risk
🫙 An income investing portfolio consists of?Stocks, bonds, ETFs, mutual funds, investment accounts, and real estate
☠️ What are the disadvantages of investing for income?Economic downturn and uncertainty
❓ Can I invest for income as a beginner?Yes, you can

What do we mean by investing for income?

Investing for income can be done in one of two ways – actively or passively. The active way is suitable for someone with both the time and the market knowledge. The passive way is more for those who don’t have the time, the knowledge or the inclination to gain it. But let’s face it – passive income investments are a great idea. They allow you to earn extra money without having to work for it. Who wouldn’t want that?

Investing money involves risk

You have to admit it sounds excellent – investing for monthly income in a purely passive way. But there is a catch: investment of any kind involves risk, so establishing your risk appetite is critical.

You can save money in various types of saving accounts with little or no risk. We are talking about accounts such as current bank accounts, ordinary savings accounts with banks and building societies, NS&I Premium Bonds, and fixed-term saving accounts. However, this, too, has a downside – it’s the low rates of interest that these types of savings accounts earn.

Developing an investment strategy to counter inflation

To the uninitiated, earning interest sounds fine, and of course, it is. But only to a certain extent. If the interest your savings make is less than the inflation rate, your savings will soon lose value in real terms.

With inflation currently running at 10.1%, while savings accounts only offer between 0.01% and 5.12% in interest rates, the loss is between 5% and 10%. So to better offset the loss or even potentially overcome it all together, you need to develop an investment strategy that includes investing in something like dividend shares.

Strategies for Income Investing newbies

If your risk appetite is low, consider something like monthly income bonds. Usually, the best interest rates are paid on fixed-income bonds.

These types of fixed-income funds pay you interest monthly on a lump sum you have deposited for a fixed term. The term is usually between 18 months and 5 years, such as the income bonds shown on the website.

But, as you can see, the income or interest payment levels are still way below the current inflation rate. Not only that but with fixed-income products like investment bond accounts in the UK, you cannot access your money before the term is up without suffering a financial penalty.

Other investing for monthly income possibilities

Corporate or government bonds are a less risky way of investing. Still, like saving accounts, even the best bond interest rates do not offer inflation-countering interest. So you need to look elsewhere if you want to follow an investment strategy to meet or beat inflation. One of the alternative investments you can consider for monthly income is investment trusts.

Investment trusts for income

Income trusts are types of investment trusts that comprise assets that produce income. They can be structured on a personal or commercial basis using publicly traded closed-end shares. Commercial examples include:

Some investors consider investment trusts to be one of the excellent ways to access dividends as they must pay out 85% of their income to their shareholders. But looking for trusts with a high dividend yield can be misleading, and you can find out more on the website.

When investing for income from trusts, some investors turn to property investment, particularly REITs (Real Estate Investment Trusts), because of their exemption from corporation tax.

Investing in SIPPs for Income

When it comes to investing for monthly income, SIPPs are only the best choice but you receive an income if you are aged 55 or over or are already a retiree. As with most defined contribution pension schemes, you can only begin withdrawing money from most SIPPs once you are 55 or over. Some providers may allow early access only by imposing a substantial financial penalty.

Investing in ISAs for income

ISAs come in several forms, but the two most appropriate as regards income are a stocks and shares ISA or an ISA containing ETFs. With both, you can receive equity income in the form of monthly or quarterly dividends which can be reinvested.

Why investing for income is so important

The economic landscape can change drastically from one period to the next. In addition, employment rates fluctuate, so if you can, you should learn how to invest money to safeguard your future income – now and in the future. Stocks that pay dividends are one of the best ways of doing so. With all of its tax benefits, a stocks and shares ISA account is popular with many UK investors.

The number of investment streams you can have

You can have as many income streams from various investments. The investments can be from fixed-income investments or non-fixed funds that allow you to withdraw when necessary and within the various framework rules. Of course, depending on your investor profile, the more diverse your investment portfolio is, the better.

How best to use a General Investment Account

You could start by opening a general investment account (GIA) if you receive a large inheritance and are still determining which type of investment would suit you best for creating dividend income. This type of account allows you to have as many investment portfolios as you want, and you can tailor them towards different goals. In addition, it’s a great way of investing any money left over once you’ve used up any ISA and pension allowances.

Each year, you can transfer money from your GIA into high-dividend ETFs or stocks and shares ISAs or any other high-yield investing vehicles you’ve discovered.

Suppose you need to figure out how best to invest for income. In that case, you should find a good professional financial adviser you can trust. To be sure, however, make certain that the company you will chat with is authorised and regulated by the Financial Conduct Authority.


What is income investing?

Income investing is an approach to investing where one builds an investment portfolio designed to generate regular income via regular dividends, interests, or payments.

What types of investments generate income?

To create a simple, but effective investment income strategy, you need to focus on these categories of investments: dividend stocks, government and corporate bonds, mutual funds and interest-bearing accounts, real estate, and annuities.

What are the advantages of income investing?

Income investing is an excellent way of generating supplemental income from investments one already has. It allows one to use their existing investment portfolio to generate extra cash flow. Income investments also offer the possibility of generating capital gains over time, which can help accumulate wealth over the next few decades.

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*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.