Investment Trusts can be profitable and fun!

Investment Trusts can be profitable and fun!

Investment trusts have been ignored for too long. They have many features that unit trusts do not possess and this makes investing in an investment trust far more exciting and potentially more profitable than unit trusts.

If you invest in “normal” collective investments such as life insurance funds, unit trusts or OEICs – then, if you invest £1, you purchase £1 worth of assets and your returns will depend solely on how those assets perform in the financial markets.

Investment Trusts are different

However, you can often buy investment trusts at a discount to net asset value, so unlike “normal” collective investments you have the potential to leverage the amount you have invested. Investing £10,000 into an investment trust at a 25% discount to net asset value provides you with assets whose asset value is £13,333.

Buying at that sort of discount means that you will have bought a “double beta” investment. Double beta means that the price of your investment trust will tend to double any increase in investment markets, and if the market falls, the loss of price (not value) will tend to be twice any market drop.

“Any investment trust at a discount of 25% or more deserves serious consideration” Jim Slater – The Zulu Principle.

I trust you realise that I am not going to give all my secrets of investment trust selection away – but at least I should provide you with a pointer for selecting the right investment trust.

So here it is: the price and discount fluctuation of investment trusts gives rise to anomalies in the financial markets. Over time the discount of individual investment trusts will fluctuate. If an investment trust discount widens and the discount is in excess of its average discount then this can be a “buying signal”, as investment trust discounts tend to normalise (return to the average) for a particular trust.

The same is true of the “premium” which is a situation where you pay more than the value of the assets of an investment trust because of the track record or manager or (as is happening in the market now) where you have a very high yield. Premiums will fluctuate also – this can also provide a “buy signal”

You will have gathered by now that investment trusts are not for the faint hearted, however they have the potential to produce above average and in some cases spectacular returns – if you choose the right time to buy and sell.

We believe that investment trusts should form part of all investment portfolios – but, before investing in investment trusts, seek out an investment trust specialist and take proper financial advice.

for more information on investment trust discounts and premiums (including a video) click the following link.

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A pension is a long-term investment that typically cannot be accessed until age 55 (57 from April 2028). The level of pension benefits offered could change depending on the value of your investments (and any income they may generate).

The interest rates in effect at the time you begin receiving benefits may also have an impact on your pension income. The tax consequences of pension withdrawals will depend on your unique situation. In later Finance Acts, tax rates, tax bases, and tax relief may change.

The opinions expressed by Ray Best are meant to inform and educate. Before making any investment decisions always take advice that is pertinent to your investment personality and financial situation.

You are aware that past performance will not necessarily be repeated in the future, but you should be aware that persistent poor performance invariably will.

The value of an investment and the income from it could go down as well as up.

The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

UnaVida Wealth Management Ltd. is directly authorised and regulated by the Financial Conduct Authority (440577).

The guidance in this website is primarily aimed at a UK audience and is subject to regulation by the Financial Conduct Authority (FCA).

The Financial Conduct Authority does not regulate tax planning, estate planning, or wills and any form of legal documentation.