Stock markets are booming, but have I just made a big mistake with my investments?

Laveta Brigham

In terms of smaller companies options, Baillie Gifford has the Global Discovery fund and the Edinburgh Worldwide investment trust. Funds and investment trusts are similar and these two are essentially trying to achieve the same thing: find the crème de la crème of smaller companies, invest in them and make […]

In terms of smaller companies options, Baillie Gifford has the Global Discovery fund and the Edinburgh Worldwide investment trust. Funds and investment trusts are similar and these two are essentially trying to achieve the same thing: find the crème de la crème of smaller companies, invest in them and make money. 

But investment trusts have a few advantages. First, they are better set up for investing in companies that are not yet listed on the stock market. These tend to be firms in their early stages, which can be more risky but also have more potential to grow. Second, trusts can borrow money to invest when they think the time is right. Again, this is risky but can improve returns. 

Over the past five years both options have performed well but EWIT has had a slight edge, returning 244pc compared with Global Discovery’s 211pc. Even better, Hargreaves Lansdown, the fund shop I use to manage my Isa, doesn’t charge a fee for holding shares whereas it charges 0.45pc on funds. Units in an investment trust are considered to be shares – another plus for EWIT over Global Discovery. 

It’s also a fraction cheaper, with an ongoing charge of 0.75pc compared with 0.79pc. So I invested £800 into EWIT, feeling proud that I’d done my homework.

It was about a day later when I realised my glaring error: I hadn’t paid attention to what companies the trust actually owns. This was a stupid oversight. You wouldn’t buy a car without checking what fixtures it came with. I noticed – too late – that 5.4pc of the trust is invested in electric car maker Tesla.

I wrote in last month’s column that I was concerned about how much of my future house deposit was already invested in the stock. It makes up 12pc of Scottish Mortgage’s portfolio and 9.3pc of Positive Change’s. Tesla’s share price has gone up by about 500pc in a year, partly pushed up by American armchair investors piling into the fashionable company. 

It split its stock at the end of August, turning every one share into five new ones. If you had held one Tesla share and it had been worth $500, you would have ended up with five shares worth $100 each. This doesn’t make the car maker intrinsically more valuable. Yet on the day of the stock split the price of its shares shot to an all-time high, suggesting they were being snapped up by amateurs tempted by the new lower price point. 

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