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I’m looking for income – what are my options?

The amount of income you need to reach your financial goals is an important factor to consider when choosing investments. In this article we take a look at the importance of income and the different sources of income available to investors.

What is income, and which investments provide it?

Income is the cash flow generated from investments. A number of investments can provide income – these include term deposits, bonds, shares, property and infrastructure.

Investment Where does the income come from?
Term deposits Interest rates
Bonds Coupon payments
Shares Dividends
Property Rental stream
Infrastructure Rental stream

Shares as a source of long-term income

If you had invested $100 in Australian shares in December 1980, your investment would have grown to $874 by the end of August 2011 based on capital growth alone. However, once you take into account income from dividends reinvested along the way, the total return is $3,213 which is almost four times as much.

Source: AMP Capital.

Which investment is right for me?

What’s your time horizon?

The right type of investment for you will largely depend on your life stage and lifestyle. If you are a long way from retirement you will most likely look for investments that offer greater potential for capital growth. These include investments such as shares, property and infrastructure.

However, if you are closer to retirement, and are going to need access to your savings in the not-so-distant future, you may opt for a greater proportion of your investments to be allocated to defensive assets such as bonds and term deposits.

Even if you are close to retirement, we believe it’s still important you hold some growth assets in your portfolio. Even though defensive assets are an important anchor for your investment strategy, with rates at very low levels, investing in these assets alone will not be enough to keep track with inflation.

How important is it that you receive a reliable income stream?

When choosing the right type of asset for you, we believe that you should focus on investments that will provide adequate and sustainable cash flows. You may also want to consider whether you will need to change your level of income in the future. As your lifestyle or circumstances change – or as your living expenses rise with inflation - you may need the flexibility to adjust your income to reflect these changes.

Act now for a better tomorrow

To learn more about how to build your wealth and investing, speak to your financial adviser or explore our range of investment options.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs.

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