David Michael shines a light on the AIC's new tool for income-focussed investors
David Michael, Website and Statistics Director
Investors looking to invest in investment companies to provide a regular income to help meet living expenses may be able to rationalise capital movements as ‘paper’ gains and losses. But, as Bruce Stout from Murray International noted, dividends are all too real.
The abolition of any requirement to purchase an annuity, coupled with continued low interest rates, have played to investment companies’ strengths. And there are no shortage of analysts willing to suggest individual investment companies, or indeed portfolios, that will generate a high level of annual income or an income that will grow over time. But is that enough? The total level of income in a year is important, of course, but so, in the real world, is its timing. We all have regular monthly bills to pay and times of the year, like Christmas, when we wouldn’t mind a bit more coming in. It was this thought that led the AIC to develop its Income Builder. A tool which allows investors to create portfolios of investment companies and see exactly how much income they generate and, just as importantly, when this income would be paid. To access Income Finder's tools and resources, investors will need to create their own account, acknowledging associated risk warnings. To demonstrate how Income Finder can help, we constructed a portfolio based on one analyst’s recommendation of 10 investment companies which it believes will provide a balanced, growing income over time. We constructed the portfolio based on investing £10,000 in each company.
Figure 1: Original income portfolio
As Figure 1 shows, the annual level of income is a healthy 3.8%. But the disparity in the levels of income each month is striking. Nearly £800 in October, but nothing in March, September and December. Looking at November as well, Christmas is going to need some careful budgeting.
If this income profile doesn’t appeal, then the Income Builder can help, as it can filter investment companies by what month they pay dividends in and how frequently. So, in the case of the above portfolio, we removed three investment companies from the ‘bumper’ months and replaced them with three investment companies from the same sectors but with different dividend payment dates. Figure 2: Amended income portfolio
As Figure 2 shows, this not only resulted in a slightly higher income but one that is much more evenly distributed over the year. No less than £300, or more than £430, in any single month.
The Income Builder is the centrepiece of a new section of the AIC website, the AIC Income Finder. In addition to the portfolio tool, this section allows investors to track individual dividend payments via the Dividend Diary, as well as accessing a Guides and Glossary section explaining all about the benefits and risks of using investment companies to generate an income. As ever, investors can click through from an individual company name to the profile pages to research their choices in more detail. Users of the AIC website have always had the ability to create and monitor portfolios of investment companies via our Watchlist service. Income Finder adds a new dimension to the site by responding to the needs of investors. Although it’s early days, more than 1,500 investors have now set up a portfolio on Income Builder since its launch in April, boosting visits to the site to record highs as well as attracting positive national and trade press coverage.
David Michael Website and Statistics Director T: 020 7282 556 E: david.michael@theaic.co.uk