I have been in an investment game for some time now and I have reached the stage where I prefer to invest in the stock market through individual shares rather than collective investment institutions such as mutual funds or investment funds. The main reason for this is that I would prefer not to pay other people in order not to do something I know I can do better on my own.
Of course, this has not always been the case. It took me a quarter of a century of experience in playing the markets to develop my own profitable investment strategy. But when I first started, like most people, I wasn’t sure I would make my own decisions. More importantly, I didn’t have a large lump sum to beat to diversify my shares and build them safely. I suspect that this is the position in which most of the newcomers in the investment world find themselves.
So I am not ashamed to admit that my first way to enter the markets in all these years ago was through one of the regular austerity programmes run by large investment funds. Twenty-five years later, I would have to say that if I had only now started my investment journey, I would have done exactly the same.
Why trust investment?
Note that I have chosen investment funds and not mutual funds. Although these two investment vehicles give investors access to a diversified portfolio of shares with relatively small amounts of money, I think that investment funds have three clear advantages compared to the competitors to which the mutual funds have been entrusted:
1. their management costs are lower.
2. Their long-term performance is generally much better.
3. They can often be bought at a discount to their net asset value.
So if you are now scratching your head and wondering why, despite all these advantages, you have never heard of trusted investments, you are in a very good company. Although things are slowly changing, investment funds remain a closed book for most investors because, unlike their cousins of a unit trust, they do not pay commission to financial advisors. As a result, they are practically ignored by the financial press. Look in the eye, high commissions equal to high advertising budgets, and since Sunday papers are based on advertising to increase sales, they will happily provide favorable coverage in their cash supplements to products promoted by high spending advertisers. This sounds like a nice, cozy relationship between large investment houses and the financial media, but leaves the small investor cold as usual – devoid of information about one of today’s best-guarded investment secrets. I hope that I will soon help to change all this.
If I have convinced you that it is worthwhile to continue researching investment funds and you are ready to set the rate on this first level of the investment ladder, I have dug out a few options below which, I think, would find some ideal solutions for the first investors such as you. I have chosen a number of vintage trust funds with impeccable roots in a broad global growth sector. These trust funds offer a very cheap way to access a broad, globally diversified portfolio. You can be sure that they all offer investors more modest monthly savings:
Foreign & Colonial Investment Trust
First of all, this is the trust that was my first choice when I started investing a quarter of a century ago and is still strong. This is a Foreign and Colonial Investment Trust, allows you to make minimum monthly savings of £50 a month and currently trades with a discount of 9.6% on net assets – meaning that for every £90.40 invested, you get £100 in stock value. Now, these discounts may fluctuate a little. It may happen that next month the discount will increase to 11% or 12% – which simply means that if you are a regular monthly investor, you will get even more discounted shares for your money. Alternatively, the discount can narrow down or even turn into a bonus, as sometimes happens if trust is particularly popular among investors – giving a boost to your investments if you bought a discount. However, in the long run, whether you are a lump sum investor or an ordinary saver, it would be difficult to confuse this trust, because over the last 3 years your investment would increase by 52.7% – not a bad result, although the profits so far are not a guarantee of similar results in the future.