Investing in the stock market can be an excellent way to grow your wealth, but it can also be intimidating for beginners. One investment option that’s worth considering, especially if you’re looking for income while still benefiting from stock market growth, is global equity income funds. In this article, we’ll break down how they work, their potential benefits, and some key considerations to keep in mind when getting started on your investing journey.
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What are global equity income funds?
Global equity income funds are a type of investment fund that aims to provide investors with a regular income stream while also offering the potential for capital appreciation. These funds primarily invest in a diversified portfolio of stocks, bonds, or other income-generating assets from companies around the world. The key difference between these funds and traditional income investments like bonds or savings accounts is that they focus on stocks, which tend to offer higher growth potential over the long term.
Generally speaking, investment funds work by pooling money from multiple investors and using that capital to purchase a diverse range of assets. Global equity income funds focus on income-producing assets. These assets can include dividend-paying stocks, real estate investment trusts (REITs), and bonds. The fund manager’s job is to carefully select and manage these investments to generate income and potential capital gains.
Investors in these funds receive their share of the income generated, usually in the form of dividends or interest payments. This income can be reinvested or taken as cash, depending on the investor’s preference. Additionally, the fund’s value can increase or decrease over time based on the performance of its underlying assets, providing the potential for capital appreciation.
What are the key benefits of global equity income funds?
1. Income Potential
Global equity income funds offer investors the opportunity to earn regular income, making them a valuable option for those seeking to supplement their earnings or retirement income. Unlike traditional savings accounts or bonds, which offer fixed and often lower interest rates, global equity income funds have the ability to provide investors with a higher and potentially growing income over time.
2. Diversification
Diversification is a risk-management strategy that helps reduce the impact of poor performance from individual holdings. By investing in a wide range of assets from different parts of the world, these funds spread risk effectively. This means that if one country or sector experiences a downturn, the negative impact on your overall investment is minimised because other holdings within the fund can potentially perform better.
3. Capital Growth
While the primary goal of global equity income funds is to provide investors with a regular income, these funds also offer the potential for capital appreciation. Capital appreciation refers to an increase in the value of your investment over time. It’s important to note that while income is a primary objective, these funds are designed to balance it with growth, making them a well-rounded investment choice.
4. Professional Management
Professional management is a significant advantage for those who may not have the time, expertise, or resources to engage in individual stock selection. Fund managers have access to extensive research and resources, enabling them to make informed decisions about which assets to include in the fund’s portfolio. Their expertise allows them to navigate the complex and ever-changing world of global markets.
Enthusiasm for the IA Global Equity Income sector
The IA Global Equity Income sector is for funds investing at least 80% of their assets globally in equities. They must also be geographically diversified and intend to achieve a yield greater than that of the MSCI World index.
It currently has £22.9bn of assets under management, according to IA data for August 2023*. This is £5.9bn more than August 2021**. Many of the funds in this area invest in large, reliable businesses that pay decent – and growing – dividends to their investors.
Global equity income funds can be a valuable addition to your investment portfolio, offering income and growth potential. While they’re not without risk, they can provide a way for beginners to start building wealth through the stock market. With careful research and a long-term time horizon, you can harness the power of these funds to achieve your financial goals.
*Source: Investment association, August 2023
