Deciding where to invest your first £1,000 can be a confusing process. There are so many funds and stocks out there, where do you start?
Investment trusts are a great option. The best thing about these companies is that they usually have a long history of generating returns for shareholders, which gives potential investors plenty of data to analyse and make an informed decision.
The Herald Investment Trust (LSE: HRI) is a great example. This firm has been operating since 1994, and over this period its net asset value has grown by 1,229%, enough to turn an initial investment of £1,000 into £14,000. This record of value creation makes the trust a perfect investment for the beginner investor.
Global diversification
Herald invests its cash for investors across the world. At the end of 2017, around half of its assets were invested in growth opportunities in Asia with the other half spread between Europe and North America. Such broad diversification is difficult for the average investor to accomplish, but has numerous benefits.
Indeed, by investing its assets across the world, Herald’s returns are not going to be held back by the poor performance of just one region. As the European economy has struggled over the past few years, the company has profited from its exposure to fast-growing Asian regions.
Herald’s performance record and global exposure make it the perfect pick for beginner investors although the one downside of the trust is its relatively high cost with an annual ongoing charge of 1.09% per annum. Still, considering its global diversification I believe that this is a price worth paying. Management is also returning cash to investors by way of a share buyback in an attempt to narrow the 13% discount to net asset value the shares are currently trading at.
Protecting your money
Another investment trust that has a multi-decade record of generating outperformance for investors is RIT Capital Partners (LSE: RCP).
Since its founding in 1988, the trust has produced an annual return of 12.9%, turning an initial £1,000 investment into just over £38,000. Unfortunately, this performance has come at a cost. The annual charges for this fund are 1.2%, although it does also support a dividend yield of 1.7%, unlike Herald.
RIT’s key goal is capital preservation and it does this by investing across a broad range of assets via a broad array of funds and high-quality equities. The firm also invests in private equity businesses, which produce returns uncorrelated to equity markets, this means it has a degree of insulation from wild market swings. In total, single stocks account for around 10% of its portfolio with the remainder made up of hedge funds and other investment funds, giving it exposure to equities all over the world and a broad selection of financial instruments and assets.
There’s also a small portion of the portfolio devoted to property, gold and fixed income securities. It would be virtually impossible for the average investor to build a portfolio of this size and diversification, which is why I believe RIT could be an invaluable addition to any portfolio. Even though the trust is expensive, its returns and diversification more than make up for the extra cost incurred.