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Investment income: try a trust
April 26, 2013 | By:

If a pure growth strategy in the current economy seems risky, says What Investment’s editor Nick Britton, consider using investment trusts for income. Plus: free guide to investment trusts

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Bullish: judging by their performance since the Seventies, investment trusts can be a good bet. Photo by Corbis

There’s no such thing as a free lunch, we’re told. In the investment world, there are various applications to that old saw. You can’t get better returns without taking more risk. You need to choose between income and growth. You can’t invest for a low cost and still expect to beat the market.

I’m not going to tell you that all of the above is nonsense, but at the magazine that I edit, What Investment, we believe in healthy scepticism. So we examined all the evidence for these blanket assertions and discovered that in today’s climate, if you look at the record of the best investment trusts, you’ll find plenty to challenge the received wisdom.

We wanted to go into some detail, so we produced a 16-page guide (available free to high50 members) covering the three main issues: cost, risk and income.

Cost, risk and income

So first, cost. Investment trusts are almost always cheaper than their open-ended cousins, typically charging less than one per cent a year as an annual management fee. And yet research has shown that they perform better, both on overall averages and when you look at the 20 or so investment companies where there are directly comparable open-ended funds.

Second, risk. It’s often argued that investment trusts are more volatile in their performance than their open-ended counterparts. But many of the funds that we looked at have grown their dividends for 20, 30, even 40 years in a row, while delivering impressive total returns. (Are these really risky investments?)

Last – but most importantly for ‘Generation high50’ investors – comes income. In today’s economic gloom, it is easy to forget that for much of the past three decades we have been living in boom times, with strong economic growth and share price returns.

Investors were conditioned to believe that you had to choose between boring, income-paying investments and whizz-bang stocks that could double or triple your money in just a few years.

What we hope to demonstrate in our guide, with the help of four experts on the investment trust sector, is that income investing can produce considerable growth over time, especially when the effect of compounding is taken into account.

Of course, income investing isn’t without its risks, as we explain in the guide. A high yield can be a mirage. But compared with the uncertainty of a pure growth strategy in an economy stuck in first gear, it has a lot to recommend it, whether you want to spend or reinvest those dividends.

The guide has been written to familiarise you with some of the most important issues to consider when using investment trusts for income. I hope it helps you to invest your money better.

Free guide to securing income from investment trustsgetoffer