Investment trusts are companies who invest in other companies by buying their shares. An investment trust hopes to make a profit from buying and selling shares in other companies, just as a supermarket hopes to make a profit from the sales of the products on their shelves.

Investment trusts are closed ended, which means that the number of shares issued by that investment trust is limited, and is set at the beginning when the company is created. Once all the shares are bought, no more can be created. If anyone then wants to invest in an investment trust, they will need to find someone who owns shares to sell to them.

The price of the shares will rise and fall depending on, amongst other things, how well the companies the investment trust invests in do. Any profits will be distributed to the shareholders as a dividend.

Pros

• Your money is pooled with other investors’ money, which means you get access to a wider range of shares and could benefit from lower charges than if you invested on your own. 
• The trust invests in a range of shares so the risk to your money is reduced as it’s not reliant on the performance of a particular company share.
• It’s professionally managed so you don’t have to make hard investment decisions – that’s all done for you by an expert.

Cons

• There is a risk, as there is with all stock market linked investments - you have to be prepared for the fact that you could get back less than you put in.
• Closed ended – when buying you must find a willing seller and vice versa when you are selling.

Investment trusts offer the potential for higher returns than savings accounts, for example, but with that comes the risk of greater losses to your money.  They are really a specialist product so unless you’re used to investing, these may not be for you.  If you’re at all unsure you should speak to a financial adviser.

Investment trusts can be bought through a stockbroker or financial adviser who can offer a range of services. But before you hand over your cash, make sure you know about the charges, what types of companies you would be investing in and that investment trusts fit with your goals and attitude to risk.

If unsure get advice – investing in shares is risky and you should get advice before buying.

Don’t panic – you shouldn’t think of selling every time your investment drops in value, it could go back up – shares are best considered as a long-term investment.

It pays to be in the know – check out the TV and press to know what’s happening with your shares, the market as a whole and who the movers and shakers are.