How should I invest £150,000 to generate an income?

But obviously I want to give you an idea of what some of your options are. But before I do, I suggest that you, or anyone reading this, download this investment guide. Regardless of whether you are investing for income or capital growth it is one of the best guides I’ve come across as it not only gives you a sense of the type of assets you could invest in (and their historic returns) but also some important questions to ask before you make an investment.

Based on the information you have provided I do question your motivation and your approach to investing. From what you have said you want to generate £500 a month (net I’m assuming – although rental income, as you suggest, would be taxable). So on a £150,000 you would need to generate 4% after tax each year (or £6,000). Now, this is not exactly shooting the lights out and is achievable without excess risk. Obviously, anything above 4% would help boost your capital sum.

Are you truly investing for income?

Is income (and perhaps growing income) what you are concerned with and not access to capital? If so then you can afford to secure an income and not worry about what happens to the capital to a certain extent. (i.e if an investment portfolio pays consistent growing income for you to live on should fluctuations in the share prices overly concern you?)

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Or are you after something to do with the money to occupy your minds? You talk about buying a business and living off the income it generates. If that is the case how is this different to buying an annuity? Businesses have a habit of sucking in extra capital you didn’t plan to spend but if you are walking into things with your eyes open then it’s your call. Just be clear about what you are trying to achieve with your money as you won’t necessarily be able to do everything.

Think about the risks you are taking

You seem risk-averse as you mention your husband’s losses but your investment strategy to date (and your suggestions for the future) are all punts on a single asset class, be it gold, spread betting or buy-to-lets. The problem is that your income stream and portfolio become overexposed to the fortunes of one asset. Should that market bomb (a company’s shares fall or the price of a property you own tumbles) you won’t have a lot of time to recoup any losses given your age. I explain more about diversification and why it is important in this article.

Investing £150,000 for income – Consider the following:

As promised I said I’d run through some of the options open to you:

Property

On the assumption that you are looking to make income from your investment then buy-to-let is one option. As a nation we are obsessed with homeownership and as a result property is often seen as a safe investment. How many times have you heard the phrase as safe as houses or been told to invest in property?

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Property returns do tend to be uncorrelated to investment markets but they are not without risk. Over the long term house prices have tended to beat inflation (around 2.8% above inflation per annum since 1960) but the housing market like investment markets experiences periodic price corrections and crashes.

For a buy-to-let investor concerned with rental income, the average UK property yield is around 5% but there are massive regional variations. Buy-to-let shouldn’t be entered into lightly as property is an illiquid investment and there are often large initial capital outlays.

My guide to buy-to-let covers all the factors you should consider including costs, likely returns and whether it is a good investment. We also covered buy-to-let in a recent podcast episode which you can watch via the YouTube video below.

Cash

Although a lot of people think of cash as the starting place when looking to invest it can be the eventual destination.

With inflation in excess of most savings account rates the real value of money on deposit can be quickly eroded. Typically the only way to earn a higher rate of interest from a savings account is to lock your money away for a longer fixed term. There are a few savings bonds available on the market that can provide inflation-beating interest rates when inflation is relatively low and the good news is that they can be held in a cash ISA, so returns can be tax-free. Here is a roundup of the best savings rates available at the moment.