• advice@octagon

I Have A Lump Sum But Am Worried About Investing For Income, What Should I Do?

Updated: Sep 29


Receiving a lump sum to deliver an income is wonderful, however taking the next step is harder than you think, particularly when markets wobbling. News headlines focusing on falls will create fear, stories of companies cutting dividends will create concern, income yields from property are not what they seem.


Storing cash under the floor boards may feel like the right thing to do, however this is rarely the most appropriate solution and is guaranteed to lose you money over the longer term.

We discuss our investment strategies which create confidence and take some of those worries away.


“Cash remains an important building block in client’s portfolios, and even clients with an aggressive risk profile earn the right to invest at that profile by ensuring they have adequate cash resources”


When investing for income, the first thing we do is set a route map, and stress test the likelihood of success.


During this process we will consider the following questions:


  • How much do you need? What is necessary, what is discretionary?

  • What else do you have coming in, and how important is the income from this investment?

  • Is it achievable, could you run out of money? What has happened in the past?

  • What growth rate is required to sustain your income?

  • Are you happy to take this risk and do you understand what it means?

Plans need to be resilient and you need to understand what the risks are and we do this by modelling them:


  • What happens if the market falls, returns are higher/lower than expected, I die early etc etc

Once completed we then look to put together a tailored investment portfolio to deliver your needs.


Our approach is to:


  • Avoid focusing on one investment type or dividend strategy.

We take a total return approach to investing. This ensures we maximise diversification and reduces risk. We do not simply follow a dividend strategy with the portfolio as this can concentrate your exposure to one type of market.

  • Apply a “bucketing” approach to the investment.

This essentially means holding money in different portfolio’s with a different risk profile to meet different needs. This helps protect against market falls, particularly in the early years of the investment.

  • Maximise the tax efficiency to reduce tax paid.

This helps minimise tax drag and helps to preserve funds longer term. Making sure we do not miss out on valuable allowances and tax wrappers.


The Strategy


The investment strategy is based a review of the empirical data held showing how long in months a portfolio takes to recover from the bottom of its fall at different risk profiles, and blends the portfolio’s to ensure your short medium and long term needs can be met from the different buckets over time.


For example, immediate income needs will always be met from cash or deposit funds because there is no chance of the investment falling in value.

After this shorter term future needs may be met from a cautious wealth preservation portfolio that tends to have lower expected levels of return but with lower levels of price volatility. This type of portfolio will tend to have a shorter time period to recover after a fall.


Finally the rest of the money will be invested for growth with higher rates of expect return but higher levels of price volatility and a longer expected time to recover after a fall.


It may look something like this:


  • Putting aside your emergency fund we keep the first 12 months income as cash so it is completely protected from market volatility

  • A Buffer, this also held in cash, and will be dipped into if markets decline. The diagram below shows how this may work:


  • Invested funds, these are there to deliver the long-term growth required and are split depending on risk into two or more individual buckets. When starting out we tend to split this segment into different buckets with different return targets and risk mandates depending on the time frame we are investing for and the type of assets held.

The diagram below shows how this might be achieved:



In order to deliver income and depending on market conditions, the income and buffer buckets will be topped up from the invested portfolios, maintaining the risk profile and investment approach overall.


It is highly likely individuals invest for income for over 30 years. The most dangerous time for income investors is in the early years. Careful planning and structuring of your accounts can help to protect you against these risks and put you in a stronger position for your future.

This article does not constitute advice. Anyone considering any form of financial planning should seek independent financial advice. Octagon Consultancy Limited is authorised and regulated by the Financial Conduct Authority (FCA). You should note that the FCA does not regulate tax advice. Past performance is not indicative of future results. The value of your investment may go down as well as up


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Octagon Consultancy Ltd (FRN 563059) is authorised and regulated by the Financial Conduct Authority. Registered Address: Woodlands Grange, Woodlands Lane, Bradley Stoke, Bristol BS32 4JY. Registered in England No. 07787430.