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.
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?
One of our favourite ways of generating income from capital is investing in dividend producing stocks and ETFs. If you look around it’s not hard to find dividend yields of 5%, and even more.
So if you aren’t going to need your capital in the short-term, and you’re prepared to not mind seeing the daily value of your shares rise and fall, then investing in dividend paying shares could be for you.
A 5% yield on £10,000 will produce £500 over the period of a year, ten times that of the £50 you might receive from a bank.
So how would we invest £10,000 for income?
You need to do your own research, please ensure you always do, but here’s what we might do.
We’d want to diversify our investments across the globe so we would look to put a high proportion of the capital into the US market, and further funds into the UK, Europe and Asia.
In fact, this is exactly how we invested the money after watching a video by the chaps at Money Unshackled over on YouTube!
We’d apportion our investment as follows:
|SPDR S&P UK Dividend (UKDV)||15%|
|SPDR S&P US Dividend Aristocrats (USDV)||15%|
|Vanguard FTSE All-World High Dividend (VHYL)||15%|
|Invesco S&P 500 High Dividend (HDLV)||15%|
|iShares UK Dividend (IUKD)||15%|
|WisdomTree Global Quality Dividend Growth UCITS ETF (GGRA)||15%|
|iShares Core FTSE 100 (ISF)||10%|
Dividend yields will of course change, but at the time of writing the current dividend yields are:
|SPDR S&P UK Dividend (UKDV)||4.87%|
|SPDR S&P US Dividend Aristocrats (USDV)||2.61%|
|Vanguard FTSE All-World High Dividend (VHYL)||4.03%|
|Invesco S&P 500 High Dividend (HDLV)||4.62%|
|iShares UK Dividend (IUKD)||5.28%|
|WisdomTree Global Quality Dividend Growth UCITS ETF (GGRA)||2.35%|
|iShares Core FTSE 100 (ISF)||5.1%|
How would you invest a lump sum for dividend income? We’d love to hear your ideas.