The COVID-19 pandemic has been a reminder for many Australians of the dangers of relying too heavily on any single source of income. Many have lost jobs, had their working hours cut or seen once-dependable investment income streams suddenly disrupted.
The 2020 ‘dividend drought’ has particularly impacted older investors and self-managed super funds who often rely on income from blue-chip share portfolios, because many large companies have been forced to cut distributions in order to conserve cash.
During the 2020 reporting season, shareholders in Commonwealth Bank saw payouts fall by more than half compared to last year, while several of Australia’s largest companies such as Aristocrat Leisure, Ramsay Health Care and Scentre Group scrapped payments altogether.
The importance of income diversity
Just as a diversified investment portfolio can reduce your risk of capital losses by spreading it across different asset categories, diversifying the sources of your income (income diversity)can reduce the chance that any one event or downturn in any one sector can severely impact upon your lifestyle and financial position.
Having a range of active and passive income sources minimises the reliance on any one employer, client or investment. Here, active income refers to income received from performing a service and includes wages, commissions and income from businesses in which you materially participate. Examples of passive income include rent generated by an investment property, or dividends received, or interest earned.
Because earning active income requires a consistent application of time and energy, finding reliable sources of passive income becomes increasingly important as we age and transition towards retirement.
Long-term investments such as rental properties can be a good way of generating consistent passive income streams. However, when it comes to finding passive income sources that are also liquid, today’s low-yield environment is making things increasingly difficult for investors.
The Trilogy Enhanced Income Fund
If you’re looking for a way to generate competitive investment income that can be accessed at relatively short notice, then consider investing in a diversified income fund.
The Trilogy Enhanced Income Fund, for example, is designed to provide you with an income-focused investment, portfolio diversity and access to your money in 30 days.
This fund invests directly and indirectly in a portfolio of cash, cash-style investments and other financial assets such as a range of short to medium term bank deposits, bills of exchange, promissory notes, bonds, fixed or floating rate debt securities as well as income securities.
To enhance returns, part of the portfolio is invested in another registered managed investment scheme operated by Trilogy, the Trilogy Monthly Income Trust, a pooled mortgage trust that invests in loans secured by registered first mortgages over Australian property.
The Trilogy Enhanced Income Fund paid investors a net distribution rate of 3.35%p.a. for the month ended 31 January 2021, and has achieved a historical average net rate of 3.83%p.a. since its launch in 2017.*
*Net rate paid to investors calculated daily and paid monthly in arrears for the month ended 31 January 2021. Net distributions are variable each month and are quoted net of management fees, costs and assume no reinvestment. Please note, past performance is not a reliable indicator of future performance.
This article has been prepared by Trilogy Funds Management Limited (Trilogy) ABN 59 080 383 679 AFSL 261425. Trilogy has issued a Product Disclosure Statement for Trilogy Enhanced Income Fund ARSN 614 682 469 dated 28 July 2020 which is available at www.trilogyfunds.com.au or by contacting us. Applications will only be accepted on the current application form that accompanies the PDS. You should obtain a copy, understand the risks, and seek personal advice from a licensed Financial Adviser before investing. Investment in the Trust is subject to terms and conditions, and risks which are disclosed in the PDS. These risks include the risk of losing income or principal invested. The Trust is not a bank deposit and Trilogy does not guarantee its performance. This advice is general advice only and does not consider your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances and we recommend that you seek personal financial product advice on your objectives, financial situation or needs and obtain and read the relevant product disclosure statement before making any investment decision.