Hargreaves Lansdown has outlined how much investors typically need to invest to generate around £125 per month in passive income. The broker says the appeal of such investments is "obvious" as Brits seek to supplement their incomes.
Lump sum requirements based on yield
According to Hal Cook, senior investment analyst at Hargreaves Lansdown, the lump sum needed depends on the average yield of the chosen investment. He explains: "If the investment average yield is 3%, then an investor would need £50,000 to generate an annual income of £1,500 or monthly income of £125."
Cook adds: "If the average yield is 5%, then an investor would need only £30,000 for an annual income of £1,500. Yields are variable, and past performance isn’t a guide to the future."
Risks and tax considerations
Cook likens yield to the interest rate on a savings account, but cautions that unlike cash savings, investors could get back less than they invest as stock and bond markets can fluctuate. He also notes that tax should be considered, though savers can use a tax-free Stocks and Shares ISA to mitigate this.
Three funds highlighted by HL
Hargreaves Lansdown lists three possible funds, cautioning they may not suit everyone. Artemis High Income invests mostly in bonds but can also invest up to 20% in shares in the UK and Europe. Cook says its focus on high-yield bonds and dividend-paying shares makes it "a little different from most bond funds and a higher-risk option."
Royal London Corporate Bond focuses on investment grade bonds, which are debt securities rated at or above a certain level by rating agencies. Cook suggests it could provide long-term income and bond exposure to share-focused portfolios.
Ninety One Diversified Income invests mainly in bonds globally, including government debt, and can also invest in company shares. Cook notes: "We consider this fund to be a step up in risk from cash, with potential for losses, while providing a consistent income over time."
This article is not financial advice. Investors should seek advice if unsure, and be aware that investments can fall in value, potentially resulting in getting back less than invested.
