short-to-medium term, as long as you don't need to touch your capital, it doesn't matter if it shrinks. (Actually you gain a little bit – investment fund managers take a fee eachMost people distinguish between capital and income. You read about people, especially retired people, whose capital sits in a bank or building society account while the owner lives on the income alone (mustn't touch the capital!). For people with little money and financial knowledge this is not a bad rule, except of course the capital depreciates every year due to inflation. I learnt many years ago that you should regard your money as a machine that generates cash. At times the machine may grow bigger or smaller, but as long as it continues to generate the cash, that is OK. The cash may be income, interest, dividends or capital gains - it doesn't matter. It’s still money in your bank account. And in the short-to-medium term, as long as you don't need to touch your capital, it doesn't matter if it shrinks. (Actually you gain a little bit – investment fund managers take a fee each es on the income alone (mustn't touch the capital!). For people with little money and financial knowledge this is not a bad rule, except of course the capital depreciates every year due to inflation. I learnt many years ago that you should regard your money as a machine that generates cash. At times the machine may grow bigger or smaller, but as long as it continues to generate the cash, that is OK. The cash may be income, interest, dividends or capital gains - it doesn't matter. It’s still money in your bank account. And in the short-to-medium term, as long as you don't need to touch your capital, it doesn't matter if it shrinks. (Actually you gain a little bit – investment fund managers take a fee eachar due to inflation. I learnt many years ago that you should regard your money as a machine that generates cash. At times the machine may grow bigger or smaller, but as long as it continues to generate the cash, that is OK. The cash may be income, interest, dividends or capital gains - it doesn't matter. It’s still money in your bank account. And in the short-to-medium term, as long as you don't need to touch your capital, it doesn't matter if it shrinks. (Actually you gain a little bit – investment fund managers take a fee eachit continues to generate the cash, that is OK. The cash may be income, interest, dividends or capital gains - it doesn't matter. It’s still money in your bank account. And in the short-to-medium term, as long as you don't need to touch your capital, it doesn't matter if it shrinks. (Actually you gain a little bit – investment fund managers take a fee eachshort-to-medium term, as long as you don't need to touch your capital, it doesn't matter if it shrinks. (Actually you gain a little bit – investment fund managers take a fee each year that is usually calculated as a percentage (1% - 1.5%) of the fund value, so whenever the fund shrinks, their fee falls).

This all assumes you have a cash reserve of readily accessible 'rainy day' money (in a high interest account, not a high street bank, please!).

In the UK, when you retire, you have to draw your pension (state as well as personal and/or company pension) as taxable income, and this uses up your personal allowance and your low rate tax band: any additional income is then taxed at 22% (and then 40% if you have a very good income!).

However, if the funds that generated this additional income are invested in a way that will produce capital gains instead, these gains are