Regular contributor David Stevenson has constructed two model portfolios for income investors that are based on some key investment principles, including diversification and liquidity. These are investments in funds and bonds that can go both up and down in value based on market conditions – they are not a replacement for cash.
The balanced portfolio aims to deliver a yield of 4.5% with underlying investments yielding in a range of 3.5% to 5.5%. The portfolio features more mainstream investment ideas likely to appeal to the cautious investor. That means mostly unit trusts and exchange-traded funds (ETFs). Most of the underlying investments should be more liquid and easier to sell in a market panic. This portfolio may be more vulnerable to interest-rate risk as its underlying yield is lower and thus could be hit hard if rates rose.
The adventurous portfolio will target a yield of 5.5%, with underlying investments yielding in a range of 4.5% to 6.5%. These will be less liquid and more likely to include complex investment trusts or direct corporate and retail bonds. These less liquid investments have higher bid/offer spreads requiring investors to think long term. The underlying investments are likely to be less vulnerable to the risk of rising rates, as they boast higher yields, but they are likely to be more volatile in price terms.
These two funds should provide a decent level of income in return for relatively low fees.
Utilities make sense if you’re looking for income, says David Stevenson. But regulators and politicians can ruin the attractions. Make sure you diversify your holdings.
Income investors have poured money into infrastructure funds in the last few years, lured by yields of 4%-7% backed by government spending. David Stevenson picks a high-quality example for his income portfolio.
David C Stevenson adds two London-listed specialist funds to his income portfolios.
This week, David C Stevenson introduces a new addition for the income portfolios – one for the conscientious investor.
This week, I’m going to begin building the two income portfolios I outlined last month with a fund that will be included in both portfolios.
The past decade of record-low interest rates has had a huge effect on anybody wanting to earn a decent income from their capital. But it can still be done, if you’re willing to accept some risk.