Why pick shares?
If not shares for income, then what else is available and popular?
Cash – the safest but typically lowest returns, with income usually flat and variable in the long term. Income above the Personal Allowance and Savings Allowance (unless sheltered in an Isa) is taxed at your marginal rate: 20, 40 or 45 per cent.
Bonds and gilts – this is fairly assured but typically flat income. Be careful with stated yields, most often quoted as gross redemption yields (GRY). You only get this yield if you hold the bond to redemption. Capital values vary depending on global benchmark yields. You do not pay capital gains tax (CGT) on gilts and qualifying corporate bonds, but income is taxed at your marginal rate.
Property/buy-to-let (BTL) – while renting out homes does produce gross income, much of this is consumed by funding costs (your mortgage), plus you can suffer void periods, incur management fees, fund repairs, and the tax regime has become brutal. BTL is really about making geared capital returns: you invest 20 per cent but benefit from gains on 100 per cent of the house price, plus over the long term houses and flats do rise at least in line with average earnings. However, BTL is hard work, and the income is anything but passive and suffers a premium rate of capital gains tax (CGT).
There is a long list of other ways to invest, but not all give an income.
Funds and investment trusts – they offer high visibility, diversity and a lot of decent yields.
Premium bonds – all about ‘average good luck’: good luck with that.
Private credit/Peer-to-peer lending – potentially high income but inevitably high capital risk.
Commercial real estate – hard to invest directly. Large investors only.
Private equity – high risk, large investors only, potentially good income... eventually.
Commodities – volatile, risky andno income.
