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How to invest to maximise your income

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AR011134 10/2018

When investing for income, you can consider a wide range of different investments, each with its own pros and cons.

Investment type



Cash deposits

No risk to capital if no more than £85,000 deposited with any one lending group.

Low rates of interest income. May not keep pace with inflation.

Government bonds

Fixed rate of income (coupon) and return of face value at the end of the term.

Still relatively low rates of return, especially for the bonds of ‘safe-haven’ countries like the UK. Capital values could suffer if inflation and interest rates rise. Currency risk if investing in overseas government bonds.

Higher rates available on emerging market government debt, but higher risk of default and you could lose your whole investment.

Corporate bonds

Fixed rate of income and return of face value at the end of the term. Generally higher yield than government bonds.

Relatively low rates of returns from the bonds of the most credit-worthy companies, and all corporate bonds carry a default risk. Higher rates available on less credit-worthy companies, but higher risk that they will default and you could lose your whole investment.

Commercial property

Long secure tenancies could lead to more stable income. Relatively higher yield than both government and credit-worthy corporate bonds.

Capital values fluctuate according to economic conditions and supply or demand. Yields will be depressed if properties cannot be let. Maintenance cost is a drag on yield. Market conditions can sometimes make it difficult to sell properties (and for investors to get out of commercial property funds). Properties may have to be sold at a loss.   


Relatively higher yield than government or credit-worthy corporate bonds. Historically, dividend income has tended to rise in line with inflation.

Only some shares produce dividend income, meaning there is some concentration risk on the companies that pay high dividends. Dividends can fall as well as rise. If the company becomes insolvent, you will lose all the capital you have invested.


All the options listed in the table above are available within a self-invested personal pension (SIPP) as direct investments. However, you would have to have quite a large fund to be able to own a commercial property outright.

Concentrating your investments on one investment like a single commercial property would also be a bad idea, as that exposes you to a lot of risk. For example, the risk that you cannot let the property and that it generates no income, the risk that demand for that type of property falls, or that maintenance costs go through the roof.

The main reason people invest their retirement savings in collective funds, rather than directly in the underlying investments, is that they can gain access to a much broader and diverse spread of investments. Those investments are also being bought, sold and managed by a professional investment manager.

All these investment types are available in a self-invested personal pension through collective funds such as unit trusts, OEICs, insurance funds and investment trusts. They are also available based on international investments rather than just UK ones. For example, you can have funds that invest solely in US shares or Japanese shares as well as those that invest only in UK shares.

You can also choose funds that invest in one type of asset only such as bonds, but the investments held within the fund are diversified globally. For example, the fund might contain Japanese, European, US and UK bonds.  

Funds are also available as index trackers or actively managed funds where the fund manager picks stocks rather than just tracking the market.

Tracker funds allow you to track a specific index. For example, you can track the FTSE All Share Index or the MSCI World Index if that is what you want to do. Index-tracking funds are cheap and you would expect to pay roughly 0.05% to 0.1% in annual management charges.

Actively managed funds are more expensive, but you potentially benefit if the investment manager you choose picks investments that generate higher returns than the market, net of charges.

Making sound financial plans is important and the decisions you make can be life changing. If you need support, you may wish to speak to a financial adviser. If you do not have one, you can find one near you at www.unbiased.co.uk. Whatever advice service you choose, there will be a charge. The amount and payment terms will be explained to you by your adviser.

Using your pension money

Retirement on the horizon? Find out what your options are.

My Retirement Planner

Use our tool to find out what your pension might be worth when you retire.


Already have a pension with Aviva? Monitor it online at the touch of a button with MyAviva.

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