Investing for income A guide to broadening your income horizons
TABLE OF CONTENTS Welcome to our little guide 3 Seeking income in a low rate environment 4 Putting your savings to work 6 Broaden your income horizon 8 Using income funds to potentially build wealth 9 A full range of investment solutions 10 Our tax-efficient investment options at a glance 11 Strong foundations to support your 12 investment plans
Welcome to our little guide Investing for Income is one of a series of guides where we look at a variety of key investment topics. We ve produced this guide because we re investment specialists, and it s part of our job to help you understand the different ways you can use your savings to potentially create a regular income. This guide will look at: Why income has become a big issue How you can arrange your savings to provide income How to set about finding the right income solution for you Using income opportunities to potentially increase your wealth Ways to invest for income with J.P. Morgan Asset Management Points to consider and next steps Please remember the information in this guide does not constitute advice. If you are unsure about the right investment choice for your individual circumstances we recommend you speak to a financial or tax adviser before making any investment decisions. OUR BIG COMMITMENT TO INVESTORS When you depend on investment income to support your lifestyle, it s good to know that your money is in expert hands. So you may be reassured to hear that we re trusted with managing over 1.6 trillion of assets (source: J.P. Morgan as at 30 September 2015) and have more than 150 years of experience. We re also the only asset manager who has received Incisive Media s Gold Standard Award thirteen years in a row (2003-2015 as at November 2015). This is an unrivalled achievement; one that recognises financial strength, capability, trust, and fair value. The award also demonstrates our commitment to offering excellent customer service. So whatever your circumstances, goals or financial aspirations, you can be confident that J.P. Morgan Asset Management has the know-how to help you meet your aims. That applies today, tomorrow and for the years ahead. Please note past performance is not a guide to the future. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. J.P. MORGAN ASSET MANAGEMENT 3
Seeking income in a low rate environment Many people rely on their savings to provide an income. But with interest rates at record lows and look set to stay low for some time to come, it is getting harder for people to meet their income needs from traditional investment sources, such as bank accounts and UK government bonds. THE SQUEEZE ON INCOME The decline in the income produced from lower risk investments, such as bank accounts and government bonds, has been dramatic over the last seven years. In 2007, an investor could expect to receive an annual income of nearly 6,000 from a 100,000 investment in a one-year bank deposit account. Today, the same investor would struggle to earn a return of 900, which is well below the rate of inflation. FTSE 100 INDEX: PRICE VERSUS TOTAL RETURN Rebased to 100 at December 1999 180 160 140 120 100 80 60 40 20 0 99 00 01 FTSE 100 total return (includes dividends) FTSE 100 price index 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Source: FactSet, FTSE, J.P. Morgan Asset Management. Data as at 31 August 2015. 4 INVESTING FOR INCOME A GUIDE TO BROADENING YOUR INCOME HORIZONS
DIVERSIFICATION IS THE KEY Although the income produced from bank deposits has fallen sharply, people s income needs have not. Few income seeking investors have been able to absorb such a drop in interest payments and have been forced to look elsewhere to make up for the loss. There are many potential solutions available that can help investors maintain an attractive level of income from their savings. Investments in higher risk markets, such as corporate bonds, company shares and even property companies, can all provide a significant potential boost to income yields. Please note the value of investments can fall as well as rise and you may not get back the full amount invested. The key is to remain diversified. Investing flexibly across a range of different Capital risk warning income producing assets has the potential to reduce risks to capital while ensuring that investors benefit from the higher levels of income that these investments can offer. It s important to remember capital in a bank account is secure, whereas in a stock market linked investment it is exposed to market fluctuations and you may not get back the original amount invested. J.P. MORGAN ASSET MANAGEMENT 5
Putting your savings to work Despite the low interest rate environment, you can still produce a respectable income from your savings. However, you may need to look beyond traditional sources, such as government bonds (or gilts) and bank accounts, towards global stock markets, corporate bond markets and property. COMPANY SHARES Potential income CORPORATE BONDS Investment grade corporate bonds are issued by companies deemed to be at low risk of default by independent ratings agencies. They deliver a regular income that is higher than is available from government bonds to compensate investors for the additional risk. CONVERTIBLES These are bonds issued by companies that can potentially be switched into equity shares at a set date. They can provide exposure to the upside potential of equities, but with the downside protection and regular income characteristics of bonds. But income can vary and prices can fall as well as rise. Company shares (or equities ) can pay regular dividends to shareholders. Payments are linked to company profits, so they may vary and they are not guaranteed. However, if company profits rise over time, dividends can potentially outrun inflation. Risk Source: J.P. Morgan Asset Management. Please be aware that this chart is intended for illustrative purposes only and should not be taken as or construed as investment advice; the risk and income profile of the assets shown on the chart are based on the opinions of the author at the time of publication and are also intended for illustrative purposes only. This material should not be considered by the recipient as a recommendation relating to the acquisition or disposal of investments. This material does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making any investment. The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Capital in a bank or building society is secure, whereas in a stockmarket linked investment it is exposed to market fluctuations. The value of bonds and other debt securities may change significantly depending on market, economic and interest rate conditions as well as the creditworthiness of the issuer. Issuers of bonds and other debt securities may fail to meet payment obligations 6 INVESTING FOR INCOME A GUIDE TO BROADENING YOUR INCOME HORIZONS
In exchange for a more attractive income, all of these investments carry a higher level of risk and therefore you may get back less than you invest. If you are comfortable with the higher level of risk associated with these types of investments, and in order to manage this risk, you should consider spreading your money across a variety of these income opportunities and be prepared to invest for the longer term to ride out any short-term volatility. HIGH YIELD BONDS UK PROPERTY SHARES Widely used for capital growth, but rental property has the potential to provide a steady income. Investing in the shares of property companies (property securities) could potentially also offer investors a regular income. Focusing on the property sector can lead to more volatile returns if the sector falls out of favour. EMERGING MARKET DEBT Refers to bonds that are issued by emerging market governments or by companies based in an emerging market economy. As emerging markets have less developed economies and political systems than developed markets, emerging market investments have historically been susceptible to periods of high volatility. However, emerging market bonds compensate investors for this higher risk by paying a higher income. High yield bonds are issued by companies deemed by independent ratings agencies to be at a high risk of default. They offer a higher level of income in exchange for the higher level of risk that they contain. For investors that are ready to take on a higher level of risk to their capital, high yield can provide a potentially appealing income solution. Income Risk (default) or the credit rating of bonds and other debt securities may be downgraded. These risks are typically increased for below investment grade and certain un-rated securities, which may also be subject to higher volatility and be more difficult to sell than investment grade securities. Companies who issue higher yield bonds typically have an increased risk of defaulting on repayments. In the event of default, the value of your investment may reduce. Economic conditions and interest rate levels may also impact significantly the values of high yield bonds. For Property share investments: Funds that invest in the shares of property investment trusts, which may own commercial and residential properties. Property investment trusts are stock market listed companies, and their shares can be affected by the performance of global stock markets. Investing in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Currency exchange rate changes may cause the sterling value of underlying overseas investments to go down as well as up. J.P. MORGAN ASSET MANAGEMENT 7
Broaden your income horizon Income is being squeezed on all sides as interest rates remain low and living costs rise faster than wages. However, by broadening your search beyond traditional sources, you could potentially generate an attractive income, although you will need to accept a higher risk to your capital. KEY STEPS TO FINDING THE RIGHT INCOME SOLUTION FOR YOU Assess your income needs. Different investment options offer different levels of income, which for some investments may be constant and for others may fluctuate. Income may also be paid at varying intervals, monthly or annually, for example. Please remember that if regular withdrawals are made from an investment, this may reduce the capital over time if the fund s growth doesn t compensate for the withdrawals. Consider how much risk you are willing to take. As a rule of thumb, investments offering a higher level of income generally expose the investor to greater risks. You can reduce risk by spreading your savings across different investments and investing for the long term. Select a trusted investment provider. While you can invest directly into the market, or rent out your own property, many people do not feel confident to manage their own investments. There are numerous fund options available that offer access to opportunities in income-paying equities or high yield corporate bonds, for example. Please remember that all the investment options outlined in this guide carry varying levels of investment risk. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested. If you are in any doubt about an investment please speak to an independent financial adviser; you can find an adviser at www.unbiased.co.uk. 8 INVESTING FOR INCOME A GUIDE TO BROADENING YOUR INCOME HORIZONS
Using income funds to potentially build wealth Many people choose funds that set out to provide an income, or investment trusts that have historically paid a high dividend, because they want to receive a regular income. By re-investing any income payments or dividends, you can use these income-orientated investments as a way to build potential future wealth. This could be a suitable strategy when you anticipate needing to take income in the future, but are happy to forego cash now for the prospect of taking a higher income later. If you would like to use income funds or investment trusts to potentially build wealth in this way, all you need do is select the accumulation option when buying funds, or tick the automatic dividend reinvestment option when buying investment trusts. This is simple to arrange when investing through a J.P. Morgan account online. Should you wish to change your selection at a later stage, you can do so online, or by contacting us directly. J.P. MORGAN ASSET MANAGEMENT 9
A full range of investment solutions INVEST IN A WAY THAT SUITS YOU You can t predict the future. But with our flexible range of financial products, you can certainly plan and prepare for it. You can invest directly into our funds through a J.P. Morgan Investment Account or you can make the most of your tax-efficient allowances and invest in a J.P. Morgan Stocks and Shares ISA (Individual Savings Account) or a Stocks and Shares Junior ISA. A FULL RANGE OF INVESTMENT SOLUTIONS We offer you all these account choices suitable for investing for income. J.P. Morgan Stocks and Shares ISA. Individual Savings Accounts (ISAs) allow you to save tax-efficiently, as you have no personal UK income tax or capital gains tax to pay when you take any profits. J.P. Morgan offers a Stocks and Shares ISA, with a minimum investment of 50 a month (or with an initial 500 lump sum and subsequent top-ups of 100). J.P. Morgan Stocks and Shares Junior ISA. Our Stocks and Shares Junior ISA allows you to invest for children up to age 18 who do not have a Child Trust Fund with similar benefits to the adult ISA. You can open a Junior ISA for a child with a minimum investment of 50 a month (or with 100 lump sums). There is no annual account fee, but other fees may apply. J.P. Morgan Investment Account. Though this account does not offer the tax advantages of an ISA, there are no limits to how much you can invest. So by using this account you can continue to invest, even when you have used up your annual ISA allowance. You can invest from 50 a month (or with a 500 initial lump sum and subsequent top-ups of 100). The level of tax benefits and liabilities will depend on individual circumstances and may change in the future. 10 INVESTING FOR INCOME A GUIDE TO BROADENING YOUR INCOME HORIZONS
Our tax-efficient investment options at a glance Here s a quick summary of the features offered by the different tax efficient investment routes available with J.P. Morgan Asset Management. FEATURES J.P. Morgan Stocks and Shares ISA J.P. Morgan Stocks and Shares Junior ISA J.P. Morgan Investment Account Tax-efficient: no personal UK income tax or capital gains tax on returns Invest from 50 a month or with a 500 initial lump sum and 100 top-ups Annual contribution limits No annual account fee Tax-efficient: no personal UK income tax or capital gains tax to pay on returns Invest from 50 a month or with 100 lump sums No early access: assets are tied up until the child s 18th birthday Annual contribution limits No annual contribution limits Invest from 50 a month or with a 500 initial lump sum and 100 top-ups You can also designate and manage an account in a child s name - however, please be aware that you will continue to be the legal account holder The level of tax benefits and liabilities will depend on individual circumstances and may change in the future. J.P. MORGAN ASSET MANAGEMENT 11
Strong foundations to support your investment plans When you re investing for income, we aim to help you achieve your goals. We do this by giving you a wide range of funds, and investment trusts to choose from. These offer a range of risk levels so you can create and manage a portfolio that matches your personal preferences. EASY MONITORING When you log in, you can see an overview of all investments held in your J.P. Morgan Account. You can also access your account 24/7. EXTENSIVE CHOICE OF FUNDS You can choose from a wide range of investment options: J.P. Morgan OEIC (Open Ended Investment Company) funds J.P. Morgan investment trusts A FOCUS ON VALUE Whichever way you invest with us, you don t pay any account fee on OEICs There are no annual account fees on the J.P. Morgan Junior ISA We do not charge an initial transaction charge on J.P. Morgan OEIC funds, and our range of investment trusts, meaning more of your money is invested. For regular savings there is no brokerage fee for all J.P. Morgan funds and investment trusts. UK stamp duty may also be applied. For full details of charges, please refer to the Key Features and Terms and Conditions document for the relevant product. 12 INVESTING FOR INCOME A GUIDE TO BROADENING YOUR INCOME HORIZONS
Points to consider a personal checklist By understanding that you may need a source of income with the potential to counter inflation, you ve made a major breakthrough towards protecting your future standard of living. Before you start to invest, however, here s a summary of the main points to consider: THINK ABOUT WHEN YOU LL WANT TO TAKE INCOME Are you looking to take an income from your investments now, or in the next few years? Or are you able to leave today s income to accumulate and potentially grow to provide a more substantial income later? This will affect your investment strategy. DECIDE HOW MUCH INCOME YOU NEED If you re planning to take income soon, work out how much you can withdraw each month without running down your overall investment too quickly. Ideally, you would want your investment to be able to grow at the same, or higher rate as inflation even after you take withdrawals. You should consult a financial adviser if you would like help with developing a personal income strategy. IF INVESTING FOR FUTURE INCOME, DECIDE HOW MUCH YOU WANT TO SAVE Work out how much you can afford to invest as part of your personal budgeting. Remember, you can always adjust down later if you need to. DECIDE HOW MUCH RISK YOU RE COMFORTABLE WITH Different kinds of investment offer different combinations of risk and reward. It is important you decide which you feel most comfortable with. MAKE YOUR INVESTMENTS AND REVIEW REGULARLY Check your ISA or Investment Account regularly to make sure you re on track to meet your income goals. Don t forget that you can buy, switch and sell your individual investments easily using your J.P. Morgan Account. And remember, we don t charge an initial transaction charge on J.P. Morgan OEIC funds, and our range of investment trusts. Brokerage and UK stamp duty may be applied. There may be annual charges applied to the Products and Investments you hold. In addition other charges may be applied to the transactions that you make. Please see the Key Features and Terms and Conditions document for further details. DETERMINE WHICH INVESTMENT PRODUCT IS RIGHT FOR YOU The guide has suggested some investment options when investing for income. These are available through various products an ISA and an Investment Account. Will one of them suit you, or would a combination of routes prove most effective, if you have more to invest? DON T MISS OUT ON TAX BENEFITS ISAs and Junior ISAs offer major tax advantages, especially if you re aiming to build up capital now to provide income later. This is why many investors see them as central to their investment strategy. However please note that tax benefits and liabilities depend on individual circumstances and may change in the future. J.P. MORGAN ASSET MANAGEMENT 13
Four simple steps to start investing We ve made it as easy as we can for you to start investing. STEP 1 CHOOSE A PRODUCT First of all choose your investment product: ISA, Junior ISA or Investment Account. STEP 2 RESEARCH AND CHOOSE YOUR FUNDS To research and select funds and invest in company shares, go online at www.jpmorgan.co.uk/investor. For managed funds ensure you receive and read the Key Investor Information Document (KIID) and for investment trusts the Investment Trust Profiles booklet. STEP 3 READ THE IMPORTANT INFORMATION Please read the Key Features and Terms and Conditions booklet for the product that you have selected. STEP 4 START INVESTING Online: Log in to www.jpmorgan.co.uk/investor and select the relevant product. By post: Complete the relevant application form(s), which can be requested from us or found online at: www.jpmorgan.co.uk/forms Alternatively, call us on 0800 20 40 20, (or +44 1268 44 44 70). Our telephone lines are open Monday to Friday 9am to 5.30pm. 14 INVESTING FOR INCOME A GUIDE TO BROADENING YOUR INCOME HORIZONS
A FINAL THOUGHT If you want to create a source of income that could potentially hold its value or even grow into the future, this guide has given you some good ideas about where to look. By widening your investment horizons, you could find a way of investing for income that offers prospects of real returns, together with a level of risk you re comfortable with. Please remember that the value of investments and the income from them may fall as well as rise and you may not get back the full amount invested.
NEXT STEPS Find out more at www.jpmorgan.co.uk/investor or call 0800 20 40 20 (or +44 1268 44 44 70). Telephone lines are open Monday to Friday, 9am to 5.30pm. Telephone calls may be recorded and monitored for security and training purposes. J.P. Morgan Asset Management does not give advice on any investment. If you are unsure about the suitability of any investment, you should speak to a financial adviser. This material should not be considered by the recipient as a recommendation relating to the acquisition or disposal of investments. This material does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making an investment. The investment views expressed in this document are those held by J.P. Morgan Asset Management at the time of writing, which are subject to change and are not to be taken or construed as investment advice. The information in this document is based on our understanding of law, regulation and revenue and customs practice as at the time of print. Investment is subject to documentation which is comprised of the Prospectus, Key Investor Information Document (KIID) and either the Key Features and Terms and Conditions or the Supplementary Information Document (SID), copies of which can be obtained free of charge from JPMorgan Asset Management Marketing Limited. Issued by JPMorgan Asset Management Marketing Limited which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No. 288553. Registered Office: 25 Bank St, Canary Wharf, London E14 5JP. LV JPM24127 03/15