A diversified investment portfolio has the potential to generate an income that you could use now or put away for your future. To achieve this desired income, you need to work with your financial adviser to set realistic goals and a clear plan for how you will achieve this desired investment income. In this article we help clarify what expectations you might set in order to achieve this desired investment income.

Regardless of the stage of life you’re in, having an income is essential. While the bulk of your income will most likely be earned through employment and the peak years of your career, this doesn’t mean you should delay your investment plans. While the obvious appeal is that this investment income will support you in retirement, by starting early, you could bring forward your retirement date or explore opportunities that otherwise may not have been available to you. So, how do you invest in a way that could deliver this desired income?
According to an Investment Trends Financial Advice report,1 investing for income is one of the top needs that Australians approach their financial advisers about..

Setting expectations

When investing to generate an income, the way your financial adviser will structure your portfolio is highly dependent on your objective, risk tolerance and capacity. These risk discussions reflect the type of investor you are, and the level of risk you’re comfortable taking in order to achieve your income objective.
Your risk capacity and tolerance help dictate the type of investments you pursue, so it is important you have a clear understanding of what they look like from the outset. Your risk tolerance is the more emotional measure of how comfortable you are with the potential for loss, while your risk capacity is a more financial view of what you can lose or put at risk. If your objective is to rely solely on dividends and interest from your investment, you need to be sure that the expectations you’ve set for your portfolio are realistic and achievable, given your appetite for risk. Your financial adviser can help you measure whether your expectations are achievable, and if not, help you refocus your goals.

Investing in line with your investment objectives, risk tolerance and capacity

If you’re a lower risk investor or perhaps are nearing retirement, you may prefer to keep it simple, such as investing in cash and/ or fixed interest investments (like term deposits or managed funds that invest in bonds). Whereas someone interested in asset classes with a higher degree of volatility and potential return may choose to invest in managed funds with exposures to both global and Australian equities, or direct equities and Exchange Traded Funds (ETFs) through the Australian Stock Exchange (ASX). Your financial adviser can explain the qualities of different asset classes, working with you to build a diverse portfolio that aligns with your financial goals and work with you to determine your appetite for risk. Generally these discussions are centred around your:

  • liquidity requirements
  • investment experience
  • ability to take investment risk
  • comfort with market volatility
  • concerns about inflation
  • concerns about taxation and
  • investment preference

Your collective responses will then guide you and your financial adviser on what investments are appropriate to meet your needs and objectives. There will be discussion around the likelihood that your needs and objectives will be achieved, given your levels of risk tolerance and capacity. Sometimes your needs and objectives cannot be easily met within your acceptable risk tolerance and capacity. In these cases, your financial adviser will work with you to find the best solution, given your constraints.
Achieving a regular investment income isn’t reliant on you investing in highly volatile asset classes. It simply means that you need to be aware of your limitations and map out your wealth plan accordingly.
There’s no cut-off age when it comes to structuring a portfolio that could generate an income. However, where feasible, investors should work with their financial adviser to develop and implement an investment action plan sooner rather than later.
The payoff can be significant, opening up options for you now, and in the future.

1 Investment Trends Financial Advice Report, August 2015, Investment Trends Pty Ltd

Disclaimer: This article has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.

Information in this article is based on current regulatory requirements and laws, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document.

This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision.