How to invest £10,000 for income

If you are lucky enough to have a lump sum to invest into the stock market then there are a number of options to choose from.

But perhaps the first question you need to ask yourself is “why am I investing in the stock market”?

You could be investing for long-term capital growth, you could be investing to generate income or you could be doing a little of both.

Investing for growing dividend income

In this article we will concentrate on investing for income.

With interest rates at all-time lows, putting your £10,000 in the bank is likely to yield less than 0.5% in interest, unless you are willing to lock up your capital for a year or more – but even then you will have to search hard to find any institution paying much over 1%.

So, putting your money in the bank could generate less that £50 in interest over the year.
Inflation dropped to 0.5% in August, down from 1.1% in July, so your interest income would be wiped out by inflation meaning the spending power of your £10,000 after one year is…. £10,000!

So where else can we look for a higher level of return?

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Portfolio reorganisation continues

As I wrote last week in “Cleaning up the Amateur Investor Portfolio“, I’ve decided to tidy up the Amateur Investor portfolio.

While I said that this was because the A.I. portfolio of over 200 holdings was proving to be too difficult to keep a close eye on, another consideration is that the 12 month anniversary of subscribing to The Share Centre’s unlimited share dealing option is approaching (The deed is done. I’m now a “Premium Trader”!)

This trading option costs £3000 per annum (£2500 + VAT) and allows frequent traders to trade as often as they like without additional trading fees. So anyone trading at least once a day will probably be better off on the Premium Trading option.

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The dividends are coming in thick and fast

A couple of weeks ago I was listening to a Motley Fool podcast and the host, David Kuo, mentioned that he liked this time of year as many of the companies he holds shares in pay dividends.

He wasn’t wrong.

It seems that every day I look at the cash element of my share dealing account and see another dividend payment has boosted the balance.

In the last 10 days I have received dividend payments from the likes of Legal & General, Prudential, RSA, Capita, BBA Aviation, Barclays and Standard Life. Today it was the turn of Admiral, BAE Systems, International Personal Finance, Weir Group and ITV.

So some of this dividend income was put back into shares today.

The Admiral Group dividend was used to buy more Admiral shares and reduce my average buying price to 1,291p too.

Other purchases were LLPC (LloydsTSB 9.25% Non-cum Pref Shares), Clarke T. (CTO), Polo Resources, PPHE Hotel Group (tipped in today’s Investors Chronicle magazine), and LLOY (LloydsTSB).

Markets around the world continued to decline today. But as income investing becomes a more and more dominant theme in the Amateur Investor portfolio, the daily ups and downs become less of a concern when there’s a constant stream of dividend payments hitting my dealing account.

Have a happy Jubilee weekend.

 

This week’s share purchases

Well, just one purchase this week actually.

Addition of more Centamin (DI) (CEY) shares, reinvesting some dividends that have come in from other shares recently.

Previous average buying price was 109p and today’s purchase at 67.5p reduces the overall average buying price to 81.33p

Might look to make a few more purchases today as a dividend from British American Tobacco came in yesterday adding to the dividends from Interior Services Group and Jardine Lloyds Thompson Group which came in on Monday.

 

Reinvesting a couple of dividend income payments

The A.I. portfolio cash balance has been boosted by payments from Low & Bonar and National Westminster Bank Plc 9%, so the funds were used to make a couple more purchases.

First purchase was Vectura (VEC) which was tipped on Shares magazine today. Bought in at 58p.

Second was a topping up of office2office (OFF) shares bought earlier in the week. Today’s purchase at 148.5p reduced the average buying price from 162p to 153p.

I am facing a dilemma. Should I sell BP?

Before I start, I should say that perhaps dilemma isn’t quite the right word. A dilemma is “a problem offering two possibilities, neither of which is practically acceptable”.

I bought into BP back in July 2010 (before I started the Amateur Investor blog) after the Deepwater Horizon oil spill had hit the shares for six. Shares had shed over 50% of their value, dropping from over 650p to around 300p.

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