High Income Investments – Great Ideas for Investment Income

Here are some ideas for high income investments. Whether you’re saving for retirement or want to boost your income streams, it’s always attractive to invest in things that generate a good level of income.

Traditionally investors have invested in high income stocks, mutual funds and corporate bonds. Another great way to get an investment is to invest in a small business. Few people know this but buying or setting up an income generating website can be a shrewd high tech investment.

Shares in blue chip large multinational companies can be a good source of income. Although the shares should appreciate in time due to capital growth, they are mostly bought due to their high level of dividend payments.

Popular high income stocks include oil companies such as BP and Shell, pharmaceutical companies like GSK and Astra Zeneca, and the water and electricity utility companies.

Shares in larger companies are normally quite stable. However, they are not immune to rises and falls in stock market valuations. Even big companies can also be vulnerable to share price shocks, so never put all your eggs in one basket. Many investors learnt this during 2007 and 2008 when bank shares lost more than 90% of their value, as well as slashing their dividend payments. The oil company BP is a popular shareholding for income investors, so the 2010 oil leak in the Gulf of Mexico hit investors hard due to the collapse of the share price plus the suspension of dividend payments for several quarters.

When selecting a high income stock it’s also good to get stocks that pay out income on a regular basis. Large companies such as BP and Shell pay out dividends on a quarterly basis, so as long as you hold the stocks on the ex dividend date then you’ll get four payouts a year. It usually takes a while for the payments to be made, especially if you hold your shares in a stockbroker nominee account.

OK so you’re thinking this is a strange addition to an income related article – but this is a potentially massively lucrative source of income, and few people know about it.

Here’s why I like income generating websites. My SIPP pension pot stands at around £20,000. Now I am many years from retirement age, but if I had to retire on that pension pot, I would get an annuity of around £1200.

Now I had to work for many years in order to get my pension pot to £20,000. In fact that amount took me around 4 years to build based on my contributions and my employers’ contributions. It wouldn’t take me nearly as long to build a website that earned £1200 a year. In fact my HubPages articles already earn around that amount, and that’s just from writing around two web pages a day for 6 months.

There are other things I like about a website based source of income:

• It’s inflation proof. A website based on advertising revenue would be expected to earn more money if inflation picked up.
• It’s crash proof. Website earnings and values should survive any major financial collapses or panics, just as they did in 2008.
• It’s reliable. Well established websites which derive their income from advertising normally have fairly stable income, especially if they’re in a topic that’s evergreen (i.e. won’t go out of date) or not seasonal (such as a Halloween costume store). I have websites that have been earning money since 2002.
• Websites can be a great source of passive income. But if you work on them once in an while then income can even increase over time.
• If you start a website in an area related to a hobby or interest then it can also be a lot of fun.

It normally takes a while to build a decent income earning website. If you don’t want to wait then you can buy existing sites in the Sitepoint Marketplace on on Flippa. Websites normally sell for around eight times their monthly income. Before buying a site it’s critical to undertake some due diligence on the site as you would when buying a business.

Bond funds are another good source of high income payments. Bond funds pool investors money and invest in a basket of different corporate bonds in order to spread risk. Funds that pay a high income normally invest in the riskier parts of the corporate bond market, and often have large holdings of junk bonds.

As well as being available through unit trusts and mutual funds, corporate bonds are also available to buy individually. In 2010 the London Stock Exchange began offering a trading system so that small investors could buy selected corporate bonds through their brokers. They can be bought in smaller quantities than was previously required. There are also a number of Exchange Traded Funds (ETFs) that invest in income generating corporate bonds. The iShares UK Corporate Bond fund (stock ticker symbol SLXX) is popular with UK small investors. It pays a quarterly dividend.

Although corporate bonds are a popular source of income, emerging market government debt has recently become a popular investment for income seekers. Emerging markets have got much better at managing their government finances in recent years. In fact, many emerging markets now have lower levels of debt compared to Western developed countries or Japan. The countries also have plenty of opportunity to pay back their debt as they are often rich in natural resources.

Popular emerging market debt funds include the Investec Emerging Market Debt fund and the Baillie Gifford Emerging Market Bond fund.

 As the BP oil spill and financial crisis showed investors, holding shares in a small number of different companies is a high risk strategy. Income investors are normally fairly risk adverse, so holding shares in individual companies is not always the best strategy.

An alternative is to invest in mutual funds, unit trusts or investment trusts that have a high income theme.

For UK based investors there are a number of unit trusts in the equity income marketplace that offer high levels of income. One popular income generating fund is the Newton High Income fund. The fund invests in shares that pay a high level of dividends. The fund has a good track record of increasing income payments over time. Income is paid quarterly.

An alternative to a standard equity high income fund is a fund that boosts income returns by using covered calls. This strategy sacrifices some of the capital growth of the shares it owns in return for boosting income returns. Popular UK based funds that use this strategy include the Schroeder Income Maximiser fund. Other fund managers also use this strategy, and the Premier Optimum Income fund has been particularly successful at delivering impressive income returns.

Most mutual funds have an annual management fee and there may be performance charges on top of those. However, if bought through a discount broker there aren’t always initial fees to pay when investing in a equity income fund.

The author of this article is not authorised to give financial advice. This article is for information only does not constitute financial advice. Before making investment or retirement decisions consult an independent financial adviser.