The question from Margarita, 38.
What is the best option for a relatively small amount of cash (for example, £50-70K) to be invested for boosting an annual income? Is it better to invest in shares or to buy a small property for renting it out? Many thanks.
Answer from Francis Klonowski, CFPTM Chartered FCSI, Principal, Klonowski & Co
“It all depends on how much the income needs to be “boosted” by, and for how long. Income in financial planning terms often means a combination of income generated by savings and investments, combined with capital withdrawals. A financial plan helps to show how much could be safely withdrawn each year without running out of money too early.
Then there is the question of investment risk: this helps to determine how much of this capital – if any – may be subject to fluctuations in value. e.g. stock market investments] and how much needs to be in secure assets that will not go down in value [i.e. cash].
Property is an illiquid investment. It may provide an income, but that income is not guaranteed – there can be periods between tenants for instance. Also, you can incur substantial costs, some of which may be known [e.g. insurance] while others are unexpected [repairs, replacements]. There are also landlord responsibilities. Above all, you can’t withdraw parts of it if you need a capital sum for any purpose; you would have to sell the whole asset – which may not be easy and would certainly incur further costs.
Finally, by keeping the money “liquid” you can utilise your ISA allowances, savings allowance and dividend allowance – all of which combine to reduce or eliminate tax on the returns, and none of which are available on property.”
Francis Klonowski, CFPTM Chartered FCSI, Principal, Klonowski & Co
Established in 1996 Klonowski & Co is a fee-based practice offering personal financial planning to private clients. There is no requirement for a minimum level of income or net worth to become a client - the only qualification is a genuine desire to set financial affairs in order and a willingness to work with us to achieve this.