With retirements that could span decades rather than years, Simon Morris, Head of Strategic Partners at Premier Asset Management, discusses an investment approach that retirees could consider when looking for a sustainable, long-term income stream to meet their needs.
Providing a sustainable income
One key issue for retirees is how they can obtain a decent, long-term level of sustainable income that has the potential to last the duration of their retirement. The traditional annuity with its guaranteed income may still be the preferred choice for many, but it is not necessarily the most suitable option for everybody. Increasing numbers of people are considering other income investment options following the radical changes to pensions regulations that were introduced in 2015.
An alternative option that may interest those approaching, or in retirement, is a multi-asset income fund. Multi-asset funds offer diversification by investing in a range of different asset classes, such as bonds, company shares, property, and alternative assets. One such fund is the Premier Multi-Asset Monthly Income Fund. The fund has a strong focus on delivering a good income stream for investors, on a monthly basis, by investing in a range of different income-producing funds managed by leading investment companies. All of the underlying investments are chosen for their ability to pay attractive levels of income. In its most basic form, this approach can be seen as a ‘not putting all your eggs in one basket’ style of investing. By investing in many different types of asset and funds, investors are not overly reliant on a single asset or fund to provide the income.
Cashing-in shares vs natural income
Broadly speaking, there are two popular ways of obtaining income from an investment. One is encashing shares. The amount of income paid out will depend on the number of shares encashed and their price at the time this was done. The level of income can potentially be managed, but the amount of shares that need to be encashed to achieve a desired level of income will depend on their price on the date of encashment. This route means that the number of shares will decrease over time, so there is the risk that your pot of shares could be completely eroded over time.
An alternative option is to receive natural income from underlying income-generating assets. This is the income that you receive from your investment as dividends, which are aggregated from the portfolio’s underlying income distributions. So, the income in this case is the number of shares in a fund multiplied by the dividend per share. The income can fluctuate over time but no shares have to be cashed-in, meaning you will have your full number of shares paying dividends for as long as you hold the investment. The income share price will also fluctuate however a natural income can provide investors with a steady income stream even in troubled markets.
Premier’s multi-asset income funds are built on the principle of natural income. We look to construct a diversified portfolio of income-generating investments that aim to pay an attractive dividend per share to our clients over the long term, with no need to cash-in shares to pay the income, which is why we believe our multi-asset income funds could be of interest for retirees whose main objective is long-term income.
This document has been produced for information purposes only and does not constitute advice. If any of the information contained in this document is unclear, we recommend you consult with an authorised financial adviser. Persons who do not have professional experience in matters relating to investments should speak with a financial adviser before making an investment decision. For your protection, calls may be monitored and recorded for training and quality assurance purposes.
Issued by Premier Asset Management, which is the marketing name used to describe the group of companies, including Premier Portfolio Managers Limited and Premier Fund Managers Limited, that are authorised and regulated by the Financial Conduct Authority.