Things I’d like to know
Q: Is the stock market my only option to generate an income?
A: No, although with shares you do have the chance to see capital growth over time as well. This is why ‘equity income’ trusts have been a popular choice for income-seeking investors.
Q: What are the benefits of opting for gilts?
A: Gilts are a safe option, as they are backed by the Government. The UK Government (like most governments around the world) issues gilts when it wants to raise revenue to fund its spending plans. Gilts are issued at a set price and generally pay you a fixed interest rate throughout a set term, after which their original face value is repaid.
Q: Should I consider corporate bonds?
A: While only governments can offer gilts, publicly quoted companies can issue something very similar - corporate bonds - and these could potentially pay higher returns than gilts, although they carry a higher risk-reward profile. Companies that want to raise money issue bonds and agree to pay a fixed interest rate for a pre-set period, after which they repay the original face value.
Q: When do corporate bond funds pay out their income?
A: Many funds pay twice a year or quarterly but several now pay monthly. Buying corporate bond trusts through an ISA wrapper means you get the interest paid entirely tax free.
Q: Should I consider National Savings products?
A: National Savings offer special products to retired people and should be considered if deemed appropriate, although the current rates of return are not that high.
Q: Could distribution bonds be another option?
A: These have fewer safety-first features. While the risks can be higher, so too can the returns. Their aim is to provide a rising ‘income’ over the years, together with some capital gains.

(article dated 1/11/03)