The need for income is at the forefront of every saver and investor, whether you are working and need to supplement your earnings, or retired and looking to add to your pension income. The need for income is one of the most common demands put on our capital and with the pressures we all face from low savings rates and challenging stock market conditions, we take a look at one particular solution that is proving popular with our income seekers.
Savers and investors versus the economy…
The economic landscape continues to challenge both savers and investors whilst those looking for income are affected as much as anyone. Interest rates remain at 0.5% as they come close to six years at this record low, and despite inflation recently falling to equal its record low of 0.5%, many salaries have been frozen and earnings are still struggling to keep up with the cost of living.
Combined with annuity rates offering low returns as a yield on capital and the need for income is clear, albeit a significant challenge for many. Against this difficult economic backdrop therefore, it is at least reassuring that there is an investment plan which on balance could make for a compelling option for income investors as well savers prepared to risk their capital in the hunt for higher returns.
In a nutshell
The FTSE Income Accumulator from Morgan Stanley is a relatively straightforward investment to understand. The plan recently re-launched and the latest issue offers investors a yield of up to 6.75% and has a fixed term of six years. Your capital is at risk if the FTSE 100 Index (the FTSE) is below 4,000 points at the end of the investment term. This is known as conditional capital protection and is one of this type of plan’s main differentiators when compared to UK equity income or other investment funds.
Potential for up to 6.75% income
This investment has already proved popular since its re-launch last week and one of the reasons is the potential headline yield of 6.75%. For each week the FTSE is between 5,000 and 8,000 points, income will be accrued with a payment being made each quarter. If the FTSE falls outside of this range on any weekly observation date, no income will be added for that week which means you would miss out on income during those weeks only rather than the whole quarter.
Should the FTSE remain within this lower and upper limit for each week during the quarter, the maximum income payment of 1.6875% will be made. This equates to an annual income of 6.75%.
Another popular feature is the quarterly payment frequency since this provides a regular opportunity to receive an income payment while a number of equity investment funds only offer twice yearly payments. Therefore, not only does the investment provide the potential for a competitive level of income, but it also pays this on a quarterly basis which could be attractive if you are looking for the opportunity to supplement existing income.
With the 5th April end of tax year deadline close at hand, we bring you our selection of income and growth investment plans to help you decide how to best make use of this valuable tax break.
These plans offer you a defined return for a defined level of risk, which means that you know the exact terms of the plan prior to investing and therefore exactly what needs to happen in order to provide you with the stated income or growth return.
Conditional capital protection
Unlike investment funds – where all of your capital moves in line with daily fluctuations in the market – these plans contain what is known as conditional capital protection. This means that you will receive a return of your capital at the end of the plan term unless the underlying investment, normally the FTSE 100 Index or a number of FTSE 100 shares, has fallen by more than 50% or finishes below a level specified at the outset, e.g. 3,900 points, in which case your capital would be at risk.
The Enhanced Income Plan from Investec was our most popular income investment in 2013 and continues to be a best seller. The main appeal of the plan is that it offers a fixed income which is paid to you each month, regardless of the performance of the FTSE 100 Index. The annual income is currently 6% (paid as 0.5% each month) which is high when compared to typical yields currently being paid by equity income funds. There are also no additional annual management charges so you know exactly how much you will receive, when and for how long. Capital is at risk if the FTSE drops by more than 50% during the plan and fails to recover by the end of the term, in which case your initial capital will be reduced by 1% for each 1% fall, so you could some or all of your initial investment.
Fair Investment view: “6% tax free income (if held in an ISA) is the equivalent of 7.5% taxable income for a basic rate tax payer and 10% for a higher rate tax payer. This high level of fixed income and the monthly payment frequency are popular features and with ongoing uncertainty around future interest rates and dividend yields, this plan could offer a competitive balance of risk versus reward that could be considered by both savers and investors”
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The need for high income remains firmly at the top of the New Year wish list for both savers and investors and as the hunt for high yield opportunities continues, being able to quickly understand and compare the numerous options available is still as important as ever.
To start the year as we mean to go on, we compare two of our most popular fixed term income investments with some of our best selling income funds in order to help you decide whether they might meet your income needs.
2013 – setting the scene?
If there is one thing 2013 taught both savers and investors, it is the harsh reality that the UK is still very much a part of the global financial crisis – record low interest rates, historically low savings rates, above target inflation and little in the way of economic growth. So will 2014 bring more of the same?
Unfortunately, it would appear that this will indeed be the case since there is little on the horizon that fills us with a sense that the end is in sight. A small drop in unemployment and inflation is of course welcome, but these are not the early signs of a sustained recovery and there still remains great uncertainty around what the coming years might hold for us all.
The need for income is a foremost concern of every saver and investor alike, whether you are working and need to supplement your earnings, or retired and looking to add to your pension income. The need for income never goes away and with the current economic environment providing one of the most challenging on record, we take a look at one particular solution that is proving popular with income seekers.
The economic landscape is one that continues to offer little in the way of a positive step towards sustainable recovery and those looking for income are affected as much as anyone. Interest rates continue at 0.5% for well into their fourth year, many salaries have been frozen due to the pressures on business, annuity rates are at record lows creating uncertainty at retirement and all of this with inflation continuing well above target.