One way to generate a regular income

Fsp Invest, 22 Oct. 2013

Tags: regular income, preference shares, compounding, interest rates, higher rates of income, savings,

Even if you enjoy your job, you probably don't want to be doing it forever. The point of investing for most of us is to build a pot that’s big enough to generate a regular income that will cover our living costs, so that we can retire in comfort. And income is also a really important part of building the pot in the first place. Read on to discover one way to generate a regular income…

One of the best ways to grow your savings is through the wonders of compounding, Phil Oakley in MoneyWeek explains...

Reinvesting income from your existing investments is a vital part of getting a decent return on your savings.

The trouble is, income seekers have a tough job on their hands just now. The government and the Reserve Bank don't really want us to save. Instead, they want us to spend in the hope that this will make the economy grow.

This is why traditional sources of income such as savings accounts pay such low rates of interest. In many cases, they don't even cover the rate of inflation.

As investors have been driven out of traditional income investments, demand for other, riskier income assets – such as corporate bonds (company IOUs) and shares that pay big, safe dividends – has risen.

This has driven up the price of these assets. In turn, this means that new buyers won’t get very high levels of income from them – in other words, the yields have gone down a lot.

So where can you go for higher rates of income on your savings?

One possible alternative is preference shares. They are a special type of share issued by some companies.

A preference share is so-called, because you get preferential treatment compared with ordinary shareholders. You get paid your dividends before them. Also, if the company goes bust, you will get your share of any money left before the ordinary shareholders do.

So if you're looking for an alternative to a savings account to generate an income, you might want to think about preferential shares.

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