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Investment Income

The importance of investment income

Chris Morcom
Partner/Private Client Adviser
15 Jul 2012

A recent article by Tony Negline in The Australian (Tuesday 10th July) clearly highlights the importance of investing for income.

While capital growth may seem like the holy grail of investment, it is income from your investments that you use to spend once you are no longer working.  That may seem obvious to many, however those invested in managed funds or unitised superannuation products don’t get a very accurate picture of their investment income.  I refer you to Tony’s article for an excellent explanation – you can access it through the following web link: http://bit.ly/NIFPPh.

Reading the article got me thinking about the portfolios we build for our clients.  When we start the process of building an investment portfolio, inevitably one of the first questions is about income – how much income is this portfolio required to generate?

From that point, we then select a spread of assets that suits the person’s willingness to tolerate volatility in their investment values.  The final point is selecting the individual investments within each asset class, with a focus on reliability of income and safety of capital.  We then check to ensure the resultant investment portfolio is likely to achieve that person’s particular goals and objectives.

At all times, the focus is on producing a reliable income from the investments to meet the investor’s current and future income needs.

The result of our preference for direct investments (rather than managed funds) means that the income generated by our portfolios remains relatively constant over time.  The long term growth in share dividends provides the added advantage of long term growth in the income generated.

With an investment portfolio generating a reliable income, there is a reduced need for investors to retain large cash balances to fund their income.  This leads to more money being invested, and can enhance longer term investment outcomes.

Through a combination of a needs-based approach to designing investment portfolios, wherever possible the use of direct investments rather than managed funds, and avoiding the use of unitized products or funds, we see our portfolios producing reliable income year after year.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.