Why You Should Consider Income Investing

Income paying stocks can boost the value of your portfolio through total returns - and by choosing those companies that pay dividends you're opting for quality equities

Emma Wall 13 October, 2015 | 15:44
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Whether you are investing for growth or income, you should include dividend paying stocks in your portfolio. The power of compound interest means that reinvested dividends can help grow your savings at a far faster rate than just capital growth alone. Infact, it can mean an extra 10% a year, every year – assuming a yield of 5% over a 10 year period. Auto-matically reinvesting dividends through opting for a fund’s accumulation share class takes out any human bias – you are forced to invest whatever the share price, squirreling away more units for a rainy day.

How Compound Interest Can Secure a Better Retirement

During the accumulation stage of pension saving it is incredibly important to maximise your contributions. Thanks to compound interest, savings made early on have the biggest impact. The longer you delay saving into a pension, the harder it is to make up these lost years.

A 30 year old earning £30,000 needs to invest 15% of their earnings to be able to enjoy a pension of third of their salary – £10,000 – allowing for inflation, according to calculations by Hargreaves Lansdown.

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Emma Wall  Emma Wall is Editor for Morningstar.co.uk

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