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Why would I bother with buy-to-let when these 2 investment trusts yield 4.5% a year?

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Retirement saving and pension planning
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Sometimes I wonder why new investors bother getting into buy-to-let. It was a great investment for 20 years, but the Treasury has burst its bubble. A string of punitive tax charges have now eaten away at the income made by amateur landlords, while house price stagnation has put a lid on the capital growth.

Easy, easy

It is far easier to invest in stocks and shares, plus you can take all your returns free of tax through your annual ISA allowance.

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Lots of ordinary savers were relying on buy-to-let to generate income in retirement, but you can do this with a balanced portfolio of dividend-paying stocks and shares, or collective funds such as investment trusts and unit trusts. These five generate income of more than 4% a year and would create a balanced retirement portfolio on their own.

Investment Trust

Current yield

City of London (IT)

4.5%

Murray Income (IT)

4.4%

Evenlode Income

4.4%

JP Morgan Emerging Markets Income

4.3%

Artemis Strategic Bond

4.1%

Average

4.3%

The list has been assembled by Laura Suter at investment platform AJ Bell, but many are regular Fool favourites, notably City of London Investment Trust (LSE: CTY), launched in 1891 and now run by Janus Henderson fund manager Job Curtis, who has been at the helm for 27 years.

Fool writer Ed Sheldon picked out this defensive dividend-paying trust in January. He praised it for increasing its dividend for more than 50 consecutive years while adding that Curtis offers a degree of stability and a consistent investment style

High yield, low charges

The trust targets UK equities and its top 10 holdings contain plenty of familiar names – including Royal Dutch ShellHSBC HoldingsBPDiageoLloyds Banking GroupBritish American Tobacco and GlaxoSmithKline. It currently yields 4.5% and has an ongoing charges figure of just 0.41% a year, which means you keep more of the income yourself.

The UK market offers some of the most generous dividends in the world, with the FTSE 100 currently yielding around 4.5% income a year. This makes it a rewarding hunting ground for income-paying funds, such as Murray Income Trust  (LSE: MYI), another on the list. Again, you will notice some familiar names, including PrudentialAstraZenecaRio Tinto and Unilever. The yield is 4.4% and the ongoing charges figure is 6.9% a year.

Steady income

Ed Sheldon recently praised this one too, noting at the time that it was trading at a large discount of 9.6% to its Net Asset Value, although this has since narrowed to 6% as stock markets and investor sentiment have recovered. The market recovery has also boosted performance, with Murray Income Trust rising 10% so far this year.

Investment trusts are particularly attractive for income seekers because they are able to hold over some of their profits to supplement income in leaner years, but it is still worth highlighting three unit trusts that Suter has selected.

Evenlode Income is mostly invested in the UK but has 10% US exposure, while JP Morgan Emerging Markets Income offers greater global diversification, while Artemis Strategic Bond balances your stock market holdings with income from a global spread of government and corporate bonds. And they’re all far easier to buy and manage than a buy-to-let property.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended AstraZeneca, Diageo, HSBC Holdings, Lloyds Banking Group, and Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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