14 August 2017

How to Take Income from Investments

Broadly speaking there are two reasons to invest money: to grow your capital or to take an income. The second of those is the more tricky one, with various options available. 

Traditionally, holding dividend-paying investments has been the first port of call, with the hope that you will also get some capital growth - enough to protect against inflation, at least. But the approach I tend to prefer is a "total return" approach whereby any dividends are reinvested, and a regular amount is paid out by withdrawing from the investment. 

The advantage of that approach was illustrated recently with a client who moved into a care home and needed to increase her income. That's not possible with the traditional approach - dividends pay what they pay - but with a total return approach we could adjust the income for her quite easily. 

As ever, there is no one size that fits all; investor objectives need to be considered as does tax, and taking withdrawals at an appropriate level is very important. But overall it tends to give a better level of control over your money.

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