The formula
How to calculate investment income
Investment income is the cash a portfolio actually pays out — dividends, bond coupons, rent from property funds — as opposed to the gain sitting in the price. Living on income alone means never selling a holding.
Yield and total return are different things. A global equity fund yielding 1.8% may return 7%; the other 5.2% arrives as price appreciation and can only be accessed by selling.
The calculator asks for:
- Portfolio value
- Portfolio yield (%) — dividends and interest actually paid out, not total return
- Effective tax rate on that income (%)
The result updates on every keystroke. The URL updates too, which makes the filled-in version easy to bookmark or send to someone else.
Worked example
Work through the defaults on this page:
- Portfolio value: 400,000
- Portfolio yield: 3.2 %
- Effective tax rate on that income: 20 %
That gives:
- Gross annual income: 12,800
- Net annual income: 10,240
- Net monthly income: 853.33
Reading the result
An income-only strategy is psychologically comfortable and mathematically restrictive. Chasing a 5% yield generally means concentrating in a few sectors, whereas a total-return approach that sells 4% a year keeps the portfolio diversified.
Where this goes wrong. Treating dividends as free money. A share price falls by roughly the dividend on the ex-dividend date — the payment is a transfer from the company's value to your account, not a return generated on top of it.
Financially they are close to equivalent, and selling units is usually more tax-efficient in the UK because capital gains have their own allowance. Dividends win on behaviour: cash simply arrives, with no decision to make.
Somewhere between 2% and 3.5% for a mainstream global mix in the current environment. Getting materially above that means tilting towards high-yield equity, corporate bonds or property, each of which brings its own risk.
It returns gross annual income. With 400,000 portfolio value, 3.2 % portfolio yield and 20 % effective tax rate on that income, that comes to 12,800. Change any field and the figure moves with it.