Generally income is the cash flow generated from an asset such as term deposits, bonds, equities and property. How much importance you and your clients place on receiving a regular income from your investment, can potentially affect your lifestyle.
People opt for less volatile, or defensive, assets such as term deposits and bonds, particularly during volatile times. While this makes sense, we believe you should keep an eye on the income you are receiving from these investments.
[box type=”shadow”]How is income calculated?
• Term deposit:
- The income from the term deposit is known as the interest rate. It is calculated by dividing the cash flow by the value of the investment.
• Share in a company stock:
- The income from the share is known as the yield. It is the annual dividend paid per share as a percentage of the share price.
• Residential property:
- The income is known as the yield. It is the annual earnings from rent as a percentage of the property’s value.
Don’t forget about the impact of rate cuts on your investment income!
At AMP we believe that defensive assets can be an important anchor for your investment strategy, they can provide stability and a regular income. Don’t forget that Term deposits and savings accounts that were paying more than 6% pa a year or two ago, are now paying less than 4.5% pa¹. So for every $1,000 you would have received from a term deposit when rates were 6% pa, you would now only receive $750 at a rate of 4.5% pa.
Shares as a source of long-term income
Shares can generate income for you when the company pays dividends to its shareholders. The advantage of this is that if the company is continuing to make a profit, you may receive a regular income, which is generally paid on a half-yearly basis.
As investors, we tend to focus on the capital growth potential of shares rather than the income they provide.
However, Australian shares have proven to be a good source of long-term income through dividend payments.
Article Source: Homeloans