If you have a lump sum of pounds 10-20,000 or so that you don't expect to need until some time in the next century, it's probably worth talking to an independent financial adviser (IFA) who specialises in investment business.
Above this level, there's a choice of an IFA or a private client stockbroker, who can construct a portfolio of shares to meet your needs.
If you have the time, inclination and skills you can manage your own portfolio. A computer, a modem, some software, a reasonable grasp of maths and a dozen hours a week should be enough. Of course, you could just leave the whole thing in the hands of an expert fund manager - and that way you don't even need a capital sum to take advantage of the stock market's long-term growth performance.
The easy way in is through the monthly savings plans which are offered in conjunction with many leading investment trusts. You can start for as little as pounds 25 a month.
An investment trust is simply a company which invests in other companies' shares. It is usually managed by a specialist City fund manager, and makes its money from two sources: the dividends paid on the shares it owns and the gains it makes from selling shares at higher prices than it paid for them.
Until a few years ago, investment trusts were regarded as specialist vehicles for professional investors - because the only way you could put money into them was by buying their shares from a broker. All that changed with the introduction of savings plans, which were originally introduced to get round the rule which prevents companies from advertising their shares - except in their prospectus when they are first floated on the stock exchange.
In simple terms they are savings accounts which collect monthly contributions which are then used to buy the shares in the trust itself. When you want to cash in, the savings plan sells the shares and hands over the proceeds.
The name of the trust normally tells you something about its investment objectives. That might involve aiming to generate income - for example the Kleinwort Benson Higher Income Trust; specialising in particular market sectors - such as the Gartmore Smaller Companies Trust; or focusing on a country or geographical area - such as the Turkey Trust.
There are a number of different kinds of investment trust, including split capital trusts which issue different classes of shares to attract different sorts of investors.
This sounds complicated, but, says Midlands financial adviser Matthew Coles, it means that you can find one to fit your personal investment goals.
"Don't be seduced by the headline performance figures," he says. "Make sure that you get the right investment for your circumstances.
A split capital trust, for instance, will be wound up on a specific date in the future, when all of the assets in the trust will be sold off and the proceeds distributed to the shareholders.
Different groups of shareholders will get a different slice of the cake. Zero dividend shares are popular with investors who want a predictable level of capital growth, but do not need an income in the meantime. Zeros pay out no dividends but offer a pre-set amount - known as the redemption value - when the trust is wound up.
So, this week, you can buy zero dividend shares in the M&G Income split capital trust for less than 75p each - and at the end of 2001, when the trust is wound up, you should get a payout of 102p.
Conversely, if you have a capital sum from which you want to receive a regular income, you could look for shares which will pay a higher dividend - but carry no entitlement to a fixed share of the assets when the trust is wound up.
By comparison with unit trusts, investment trusts have the advantage that they can put money into a wider spread of investments. These include companies whose shares are not publicly traded, property and even commodities. The charges levied by investment trusts are also generally lower than with unit trusts.
Charges vary widely. The main element is an annual charge, which ranges from 0.2 per cent on large funds up to 1.5 per cent on some of the smaller, more specialist funds. Some funds also have initial charges, and some also impose other charges such as brokerage fees on the sale of shares. These can have a disproportionate effect on the performance of your investment, particularly in the early years - so it pays to look carefully at the small print before making a commitment.
One thing you can be sure of: in an increasingly competitive climate, the pressure on fund managers to cut their charges shows no sign of easing, and never a month goes by without at least one announcement of a reduction. At the same time, charging structures are also being simplified by many fund managers - all of which will make investment trusts even more attractive to investorsn
For more information, ask the Association of Investment Trust Companies (0171-588 5347) for its fact sheets.Reuse content