In considering whether investment trusts are appropriate for your particular financial circumstances and plans, you need to do plenty of homework.
First, like all investments and shares, they should only be bought if you plan to invest for the long term. Returns are never guaranteed – and the value of your investment can fall as evidenced by recent sharp stock corrections worldwide.
But the longer you invest, the more chance you give yourself of making a profit on your money. So unless you are prepared to invest for at least five years, you are better steering clear.
In considering whether investment trusts are appropriate for your particular financial circumstances and plans, you need to do plenty of homework
Also, if capital security is paramount, trusts will not be for you – and you are better keeping your money in a savings account with a bank or building society.
If you are happy with putting money away long term, then investment trusts are an option – alongside other investments such as company shares and funds.
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In terms of specific investment trusts, there is a broad range to choose from – everything from those that are income-friendly through to trusts investing in the stock markets of some of the world’s emerging markets. But they all carry an element of investment risk.
A good starting point for newbie investors is to visit the website of the Association of Investment Companies at theaic.co.uk. Its ‘find and compare’ section provides key information on individual trusts, allowing you to examine investment objectives and where a fund is invested geographically.
It also provides details of the trust’s dividend history, the charges it takes for running the fund (the higher they are, the less you receive in investment return) and crucially its past performance.
You can also access key documents such as a trust’s latest monthly factsheet and report and accounts.
This will give you an insight into how it is run. In addition, trusts are now required to make available a ‘key information document’ to wannabe investors.
As the name implies, this spells out key details about a trust – and potential returns under different market conditions. Although criticised by some (myself included) for being potentially misleading, this document should be scrutinised.
Carrying out internet searches on specific investment trusts can also reveal any articles written about them in the financial press.
The best way to buy trusts is through an online investment account run by the likes of AJ Bell, Halifax and Hargreaves Lansdown. You will have the option within the account to hold trusts in a pension or Isa (tax efficient) or as part of a general investment portfolio.
There will be dealing charges so check before you buy. A good way of starting is to invest small amounts on a monthly basis. You can then monitor the progress of your holdings by simply going online.