Investment Trusts
Investing
Will you be investing a lump sum or on a regular savings basis? One of the advantages of regular saving is pound-cost averaging: you avoid the risk of buying all the shares in one go when the price may be high and your average purchase price may actually work out to be lower than the average price over the period in which you buy your shares (it’s a mathematical quirk resulting from the fact that you buy proportionately more shares when the price is lower).
Next, think about risk and how well a particular trust would fit in with your existing investment portfolio. Broadly speaking, the level of risk you are prepared to accept will depend on how long a view you are prepared to take.
However, there's more to risk than that with investment trusts. Although they have a finite number of shares and thus a finite amount of money to invest, trusts are allowed to borrow to buy more assets (this is known as gearing). The profit they make on these extra assets is intended to cover the interest on the loan, and leave an additional profit for investors. But, the more an investment trust borrows, the more risky it is. What if the extra assets perform badly?
One measure you will see discussed many times in relation to investment trusts is volatility. The aim of this is to provide a yardstick of the historic performance of the trust's shares and offer a method of assessing the uncertainty around the future expectations for your investment, i.e. how risky is it?
Sectors
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