Birmingham Lake

"Wealth is not his that has it, but his that enjoys it"

-Benjamin Franklin

Traveling in the Alps

"Wealth consists not in having great possessions, but in having few wants"


Traveling in Crete

"Time is the most valuable thing a man can spend"

- Laertius Diogenes

Morris Dancing Birmingham

"The glow of one warm thought is to be worth than money."

-Thomas Jefferson

Alan Moran Independent Financial Adviser Birmingham

"I don't care too much for money for money can't buy me love"

- The Beatles

Traveling in the Red Sea

"Simple, genuine goodness is the best capital to found the business of this life upon. It lasts when fame and money fail, and it is the only riches we can take out this world with us."

-Louisa May Alcott, Little Men

cliffs of dover

"And though I have the gift of prophecy, and understand all mysteries, and all knowledge, and though I have all faith, so that I could remove mountains, and have not charity, I am nothing."

-St. Paul

Finance in the Big City

"Not he who has much is rich but he who gives much"

-Erich Fromm

Birmingham UK Sunset

"Life is what happens to you while you are busy making other plans"

-John Lennon

Travels - A well lived life

"I pity that man who wants a coat so cheap that the man or woman who produces the cloth shall starve in the process"

-Benjamin Harrison

How to Invest for Income in a Low Interest Rate Environment

Low risk asset portfolio for income


  • Introduction
  • Assessing Risk
  • Creating an Income Portfolio Structure
  • Correlation
  • Tax
  • Vehicles/Funds
  • Summary


The asset areas described above are considered the main income producers for anyone looking to generate an income from their available capital. There are other possibilities but these are generally esoteric in nature; this does not mean they should be discounted but it is probable, in the main, it will be one or a combination of these mainstream assets which are utilised. If this is the case then there are several questions which need to be answered before any structure can be applied, some of the key questions are:

  • What income level is required or desired?
  • What risk can be tolerated?
  • How important is capital growth?
  • What is the tax position?
  • How is the income required and how often?

This is the fact-find element: the part of the process which creates the overview of the investor’s requirement positioned against their current and future situations. This is going to be the most important factor; determining the levels and parameters from which the income portfolio can be constructed. Different combinations of different types of investment will be appropriate depending on the individual’s requirement, overall financial and tax position.

Assessing Risk

Amongst the fact-finding there has to be a careful appraisal of risk. For example, investing in shares has proven to be one of the most dynamic ways of generating income. The current position (end 2016) has dividend levels from UK shares averaging 3.9% per year (based on the FTSE 100). This is compared to cash returns which struggle to get above 1.5% per year. Shares are producing around 2-2.5 times the level of income. Indeed with careful selection of high yielding shares the percentage could probably be lifted to close to 5%.

UK shares offer investors two further tempting possible advantages: dividend (income) growth and growth on the capital invested. A cash account has no capital growth possibility. Without a risk factor the use of shares is clearly a better prospect. However as stated earlier, shares do carry a risk and the trade-off is between the prospect of extra return and the added risk. The risk is – to a significant extent – measurable, through a number of methods. Although it can be measured and assessed this still only helps to a limited degree, because the risk can only be positioned as a factor of a number of future possible outcomes. Using a simplistic example: If there is a 10% chance that the shares used to generate income may fall by 35%, the investor still cannot know what is going to happen. Is the 90% possibility going to occur or the 10% possibility?

Assuming the risk can be assessed accurately then the issue becomes one of risk tolerance. This is a very important word, because for decades everyone used to focus on risk attitude. The reality is that the investor’s attitude to risk is not especially important (from a financial planning viewpoint). Their tolerance to risk is the important factor. If the investor cannot tolerate a 35% drop in value (if they choose to invest in shares and this is the correct level of loss that may be sustained) - because it would create havoc with their finances - then the investment is not suitable.

All of the income areas need to be assessed in this way and a healthy regard for mixing and matching the risk of each investment/asset area considered against the investor’s own risk position (as dictated by their ability to tolerate losses) needs to be taken. The steps in creating an income structure need to start with a fact-find and then a full assessment of the risk as described needs to be undertaken. Once this has happened then an income portfolio can be structured.


How Flexi-Access Drawdown Works

The asset areas outlined above: cash, bonds, shares and property are quite easy to widen simply by splitting bonds into government and corporate bonds; shares into UK and overseas shares and property into residential and commercial property. It is possible to go even further and look at smaller company shares and larger company shares. Although the asset areas may at first look narrow, they do have breadth beneath their headline titles. The critical aspect of creating a portfolio is to take the two steps mentioned in the section above (the fact-find and risk assessment steps) and then to start marrying these against the income structures, of which there will be many variations that could exist. The structure used should be the nearest match to the income required & risk tolerance.


The structures will mix the asset classes to balance the risk and reward in line with the investor’s requirement/position. This is known as “asset allocation” – balancing out the different asset classes in different proportions to match the required position. For example a low risk income investor may have an asset allocation portfolio as shown in example A:

high and low risk investor asset allocations

This could produce an income of around 3.5% depending on the exact holdings within each asset area, but the risk is definitely on the low side. A high risk income investor may have a different allocation, see example B.

This could produce an income of around 4.5% per year and this portfolio has a greater prospect of future income growth and future capital growth than the low risk version above. However it is much riskier.

Important Note:

The asset allocation splits above are merely illustrative and are provided as general examples to highlight the point. They are not indicative or suggestions. Any asset allocation breakdown must only be considered on an individual basis and after appropriate steps have been taken to analyse individual circumstances and requirements. There are other factors that have not yet been covered which need to be brought into the ‘equation’.

The Tax Position

Any asset allocation split has to be considered with a high regard for ‘correlation’. This means that an ideal portfolio will mix the assets in an attempt to ensure that returns are as loosely correlated as possible, so that if one area used is performing below expectation another area will hopefully be doing better. Historically different asset classes have performed differently at different times. It is important to avoid correlating assets too closely together otherwise they may move in the same direction causing unwanted losses or difficulty. Through careful correlation the overall risk of any portfolio can be reduced.


Most investors do not invest into the asset classes in a direct fashion, preferring instead to use investment vehicles (such as an ISA or Investment Trust) as the means to gain exposure to that asset class. The use of such vehicles and funds is an important consideration, once again providing an element of risk reduction. For example if you were inclined to invest into Government Bonds it may be more prudent to invest into a fund, which in turn invests into a range of Government Bonds. Not only is this generally more convenient it also allows investors to diversify their holdings across many individual Bond types. There are practical reasons as well: many investors who want to invest in property simply do not have the available money to buy an individual property or the expertise (or time?) to manage their own property, however a property fund allows an easier and lower entry point allowing the investor to access the asset class without having to buy the asset direct. The choice of which vehicles to use and which funds, fund managers and type of funds is animportant and influential part of the process.


The assets classes which make up the asset allocation which in turn will determine the portfolio structure, could be influenced by tax. Different asset classes have different tax treatments. The growth on shares and property is classed as a Capital Gain and in the right circumstances investors can use these gains within their annual allowance against Capital Gains Tax to generate a tax free return. Also the rate of Capital Gains Tax maybe lower than the Income Tax rate for a particular investor (or it may be higher). Tax factors can influence the mix of assets used.



If you are looking to invest for income, then there is no reason to allow the current low interest rate environment to depress you! Income can be generated from many different asset classes and the level of income from some of these remains very competitive in relation to the current inflation level. The higher risk attached with these better income producers can be managed, if you follow the steps and processes outlined in this guide; we are here to help you do this.

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We can help you plan your investments and generate income even during low interest environments. 

Alan Moran is one of the most highly qualified advisers in the UK. He became a Certified Financial Planner in 1995 and he was one of the first Chartered Financial Planners in 2005. He is a Chartered FCSI, a holder of the IMC certificate and member of CFA UK. His expertise has been called upon by The CII, The IFP, The Kinder Institute, and others, where he has trained and examined other financial advisers.

Readers should not rely on, or take any action or steps, based on anything written in these guides without first taking appropriate advice. Interface Financial Planning Ltd cannot be held responsible for any decisions based on the wording in these guides where such advice has not been sought or taken.

The information contained in these guides is based on legislation as of the date of preparation and this may be subject to change. We will aim to keep them up to date but inevitably there may be a time delay so current legislation should always be checked.

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