There are almost 2000 different unit and investment trusts ranging from relatively stable cash unit trusts to highly volatile emerging
There are almost 2,000 different unit and investment trusts, ranging from relatively stable cash unit trusts to highly volatile emerging markets. Which sector to choose depends on your objectives, and how much risk you can accept. A general rule of thumb is to decide how long the investment period is likely to be. The longer it is the easier it is to have a portion of your money in a riskier sector.Even with unit and investment trusts there is still a need to diversify the portfolio between different sectors, and sometimes different funds within them.Another question is whether to go for growth or income. Generally, if you are relatively young and saving for a point far into the future - to pay off the mortgage or help your child through university - growth is more important.
Older people approaching or in retirement may prefer an income fund with fewer risks Some funds offer a mix of capital growth and income. Tracker funds also offer a mixture reflecting the index, usually the FT-SE 100, as a whole.Choosing the right fund involves a series of different calculations Performance is a key area. Always check how a fund has performed within its sector, not just in the past 12 months but over three, five, seven and 10 years. Generally, if a fund is in the top quarter, or even the top half, of its sector over each of those periods, it is well-managed.Another area to compare is that of charges. The less the initial charge and subsequent annual management fees, the more you get to keep at the end of the investment period. The difference can be substantial.A further point to consider is that of fund volatility. If performance swings wildly from year to year, the fund manager may be taking unacceptable risks with your money.Several specialist investment magazines, including Money Management, Planned Savings and What Investment, all available through newsagents, provide details on charges, performance over long investment periods and on volatility.Finally, investing is not always easy.
If you have any doubt, consult an expert independent financial adviser (IFA). You may pay more in fees or commission, but the advice could prove invaluable in five or 10 years' time.q For details of an IFA near you, call 0117 971 1177.. Unit and investment trusts are the ideal way for small investors to buy into the world's stock markets. Although, over time, stock market investments outperform money placed in building society accounts or gilts and other fixed-interest securities, direct investment in shares is risky. The more shares you buy the more the risk is diluted, but some stockbrokers believe an investor should have at least pounds 100,000 to spend. Unit and investment trusts pool savings to buy a wide range of shares.
However, the two types of trust vary in several important ways, and anyone wanting to invest should be aware of the differences.q Unit trust funds are divided into units. Each unit represents an equal proportion of the value of the fund's underlying investments Investment trusts, on the other hand, issue shares. They are set up as companies, with the shares traded on the stock market.q Unit trusts are open-ended funds. The fund manager is always happy to take more money to invest. However, if share prices tumble, unit trust managers may have to sell some of their better investments to pay people who want to cash in their money By contrast, investment trusts are closed- end funds.