FUNDTRUSTI Review is fundtrusti.com a Scam or Should you Invest

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Investing guides

Is an investment trust right for you?

You need to answer yes to the following questions before you begin thinking about investing in an investment trust:

Are you willing to risk your investment dropping in value?

Are you looking to invest for a substantial amount of time i.e. at least 5 years?

It is also recommended that you have suitable savings in cash before investing for the long term.

If you are looking for a short term investment or are unhappy with putting your money at risk then an investment trust is not for you.

How to pick the right investment trust

Here are four things you should do before choosing an investment trust:

Look at where they invest

Each investment trust will invest in a different asset class and location.

For example: ‘Investment trust 1’ may only invest in the Asian emerging markets, while ‘Investment trust 2’ may only specialise in the European property market.

Look at past performance

Previous years’ performance figures are not a guarantee of future success

There is some debate over how useful performance figures are in assessing how suitable a fund is before you invest – strong performance figures don’t mean that a fund will continue to make a profit.

However, a consistent record of above average returns could be an indication that a fund is well managed.

What are absolute returns?

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Absolute returns show you how much an investment has grown over a set period; for example, if you invested Ј1,000 and after two years it was worth Ј1,200, the absolute return would be 20%.

The danger with using absolute returns is that they fail to show whether an investment trust has fallen in value in any one year, for example:

Ј1,000 could double in value to Ј2,000 in year one but then fall by 50% in year two to Ј1,500 and appear like it has had an absolute return of 50% over the two years.

What are annualised returns?

They are the standard way to show how an investment trust has performed over a number of years.

The annualised return, gives you an average of how much it has gained per year, taking into account that the balance would increase each year by the amount of interest it had earned.

In same case above, the annualised return is 9.54%, meaning that if you had put your Ј1,000 in a savings account paying 9.54% with compound interest; it would be worth Ј1,200 after two years.

Check out the fund manager

The fund manager determines where your money is invested, so this is someone you need to have faith in.

Check each fund manager’s performance over three to ten years online on the TrustNet website.

Top tip: Check how long the fund manager has been his current role – if he or she only joined a few months ago performance figures will be less useful in assessing how competent the fund manager is.

Their attitude to risk

Some investment trusts use ‘gearing’ to borrow money for leverage and to chase bigger returns. This can increase their profits when things go well but also makes them riskier because when things go wrong the losses are increased too.

You can find out more about gearing in our ‘What is an investment trust?’ guide.

What do you need to buy shares in an investment trust?

You will need a broker account or a financial advisor to buy shares in your chosen investment trust, though each has pros and cons:

Broker account

Immediate online access

Unbiased information only

No advice, execution only

Only available online

Extra hidden fees

Financial advisor

Expert advice before you invest

Regulated face to face guidance

Can be much more expensive

Can be slower than online brokers

What is an investment limit?

Some investment trusts put limits on how much you can invest, either by stipulating a minimum or maximum investment deposit.

How can you monitor the performance of your investment trust?

Performance figures for most investment trusts are published on a daily basis. Some will report live trading figures online so you can track how they perform in real time.

One of the key figures is the NAV (Net Asset Value); this is the value of all of an investments trust’s assets per share.

The easiest place to track your investments is likely to be online through:

your broker account e.g. Hargreaves Lansdown

your investment trust’s website

third party investment tracking websites

How do I sell my shares in an investment trust?

You can sell your shares through the same broker account that you purchased them with, or if you purchased them through an advisor by instructing them to sell them for you.

If you manage your investment trust shares online you can log into your account and select which investment to sell.

Some accounts may charge an exit fee, but many online accounts will let you sell free of charge.

Should You Invest In The First Trust Water ETF (FIW)?

Launched on 05/08/2007, the First Trust Water ETF (FIW) is a passively managed exchange traded fund designed to provide a broad exposure to the Industrials – Water segment of the U.S. equity market.

Passively managed ETFs are becoming increasingly popular with institutional as well as retail investors due to their low cost, transparency, flexibility and tax efficiency. They are excellent vehicles for long term investors.

Sector ETFs are also funds of convenience, offering many ways to gain low risk and diversified exposure to a broad group of companies in particular sectors. Industrials – Water is one of the 16 broad Zacks sectors within the Zacks Industry classification. It is currently ranked 2, placing it in top 13%.

The fund is sponsored by First Trust Advisors. It has amassed assets over $303.55 M, making it one of the average sized ETFs attempting to match the performance of the Industrials – Water segment of the U.S. equity market. FIW seeks to match the performance of the ISE Clean Edge Water Index before fees and expenses.

The ISE Clean Edge Water Index is a modified market capitalization-weighted index comprised of exchange-listed companies that derive a substantial portion of their revenues from the potable and wastewater industry.

When considering an ETF’s total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal.

Annual operating expenses for this ETF are 0.57%, making it one of the cheaper products in the space.

It has a 12-month trailing dividend yield of 0.66%.

Sector Exposure and Top Holdings

While ETFs offer diversified exposure, which minimizes single stock risk, a deep look into a fund’s holdings is a valuable exercise. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Industrials sector–about 56.90% of the portfolio. Utilities and Healthcare round out the top three.

Looking at individual holdings, Idexx Laboratories, Inc. (IDXX) accounts for about 4.49% of total assets, followed by Ecolab Inc. (NYSE: ECL ) and Danaher Corporation (NYSE: DHR ).

The top 10 holdings account for about 39.42% of total assets under management.

Performance and Risk

The ETF return is roughly 0.66% and it’s up approximately 13.95% so far this year and in the past one year (as of 06/15/2020), respectively. FIW has traded between $41.93 and $49.96 during this last 52-week period.

The ETF has a beta of 1.11 and standard deviation of 15.44% for the trailing three-year period, making it a medium risk choice in the space. With about 37 holdings, it has more concentrated exposure than peers.

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

Should You Invest in Real Estate or Stocks?

The pros and cons of investing in real estate vs. stocks

Image by Ellen Lindner © The Balance 2020

When deciding whether to invest in real estate or stock, there isn’t a simple answer. Identifying the better choice depends on your personality, lifestyle preferences, comfort with risk, and more.

It also depends on timing. Very few stocks would have beat buying beachfront property in California in the 1970s using a lot of debt, then cashing in twenty years later. Virtually no real estate could have beat the returns you earned if you invested in shares of Microsoft, Apple, Amazon, or Walmart early on in the companies’ history, especially if you reinvested your dividends.

Timing is impossible to predict when making investment choices. But understanding each type of investment is key to choosing the best strategy to help your money grow and create financial security.

Real Estate vs. Stocks

When you buy shares of stock, you are buying a piece of a company. If a company has 1,000,000 shares outstanding and you own 10,000 shares, you own 1% of the company.

As the value of the company’s shares grows, the value of your stock also grows. The company’s board of directors, who are elected by stockholders just like you to watch over the management, decides how much of the profit each year gets reinvested in expansion and how much gets paid out as cash dividends.

It’s easy for stock to become over- or under-valued. Before investing, study the company as a whole, including how much of their profit is paid out as dividends. If a company is paying more than 60% of profits as dividends, they may not have enough cash flow to cover unexpected changes in the market.

When you invest in real estate, you are buying physical land or property. Some real estate costs you money every month you hold it, such as a vacant parcel of land that you pay taxes and maintenance on while waiting to sell to a developer.

Some real estate is cash-generating, such as an apartment building, rental houses, or strip mall where you pay expenses, tenants pay rent, and you keep the difference as profit.

There are benefits and drawbacks to each type of investment.

Pros and Cons of Investing in Real Estate

Is real estate the right investment for you? Understanding the pros and cons will help you decide.

5 Pros of Investing in Real Estate

  1. Comfort. Real estate is often a more comfortable investment for the lower and middle classes because they grew up exposed to it (just as the upper classes often learned about stocks, bonds, and other securities during their childhood and teenage years). It’s likely most people heard their parents talking about the importance of “owning a home.” The result is that they are more open to buying land than many other investments.
  2. Cash flow. Rent from real estate can provide steady, reliable cash flow on a month-to-month basis. Many investments only improve your cash flow in the long-term or when you sell them. 
  3. Limiting fraud. It’s more difficult to be defrauded in real estate because you can physically show up, inspect your property, run a background check on the tenants, make sure that the building is actually there before you buy it, and do repairs yourself. With stocks, you have to trust the management and the auditors.
  4. Using debt. Using leverage (debt) in real estate can be structured far more safely than using debt to buy stocks by trading on margin. 
  5. Safety. Real estate investments have traditionally been a terrific inflation hedge to protect against a loss in the purchasing power of the dollar. 

3 Cons of Investing in Real Estate

  1. Time and effort. Compared to stocks, real estate takes a lot of hands-on work. You have to deal with the midnight phone calls about exploding sewage in a bathroom, gas leaks, the possibility of getting sued for a bad plank on the porch, and more. Even if you hire a property manager to take care of your real estate investments, managing your investment will still require occasional meetings and oversight.
  2. Continued costs. Real estate can cost you money every month if the property is unoccupied. You still have to pay taxes, maintenance, utilities, insurance, and more. If you find yourself with a higher-than-usual vacancy rate due to factors beyond your control, you could actually end up losing money every month.
  3. Value. With a few exceptions, the actual value of real estate hardly ever increases in inflation-adjusted terms.

Even if the actual value doesn’t increase, though, you benefit from the power of leverage. That is, imagine you buy a $300,000 property, putting down $60,000 of your own money. If inflation goes up 3%, then the house would go up to $309,000 in value. Your actual “value” of the house hasn’t changed, just the number of dollars it takes to buy it. Because you only invested $60,000, however, that represents a return of $9,000 on $60,000: a 15% return. Factoring out the 3% inflation, that’s 12% in real gains before the costs of owning the property. That is what makes real estate so attractive.

Most people are more familiar with real estate as an investment than with stocks.

Provides month-to-month cash flow if you rent it out.

It’s easier to avoid fraud with real estate.

Debt (leverage) is safer with real estate than stocks.

Real estate has historically served as an effective inflation hedge.

Much more work as an investment than stocks.

Can cost you money out of pocket each month if your property’s unoccupied.

The increase in real estate value, in actuality, doesn’t increase much when factoring in the inflation rate.

Pros and Cons of Investing in Stocks

Like real estate, investing in the stock market comes with both advantages and drawbacks.

6 Pros of Investing in Stocks

  1. Longevity. More than 100 years of research have proven that despite all of the crashes, buying stocks, reinvesting the dividends, and holding them for long periods of time has been the greatest wealth creator in history.   Nothing, in terms of other asset classes, beats business ownership—and when you buy a stock, you are buying a piece of a business.
  2. Minimal work. Unlike running a small business, owning part of a business through shares of stock doesn’t require any work on your part (other than researching each company to determine if it is a sound investment). You benefit from the company’s results but don’t have to show up to work.
  3. Dividends. High-quality stocks not only increase their profits year after year, but they increase their cash dividends as well. This means that you will receive bigger checks in the mail as the company’s earnings grow. And if you hold onto your stocks long-term and reinvest your dividends, after a few decades your wealth will have grown significantly.
  4. Access. You don’t need to have huge sums of available cash to begin investing in the stock market. With some mutual funds or individual stocks, you can invest as little as $100 per month.   There are also a variety of microsaving apps that allow you to begin investing for less than $25.     Real estate requires substantially more money in your initial investment, as well as the cost of maintenance and improvements.
  5. Liquidity. Stocks are far more liquid than real estate investments.   During regular market hours, you can sell your entire position, many times, in a matter of seconds. You may have to list real estate for days, weeks, months, or in extreme cases, years before finding a buyer.
  6. Borrowing. Borrowing against your stocks is much easier than real estate. If your broker has approved you for margin borrowing (usually, it just requires you to fill out a form), it’s as easy as writing a check against your account. If the money isn’t in there, a debt is created against your stocks and you pay interest on it, which is typically fairly low. 

3 Cons of Investing in Stocks

  1. Emotional investing. Though stocks have been proven conclusively to generate wealth over the long run, many investors are too emotional and undisciplined to benefit fully. They end up losing money because of psychological factors. During the credit crisis of 2007-2009, well-known financial advisors were telling people to sell their stocks after the market had tanked 50%, at the very moment they should have been buying.   
  2. Short-term volatility. The price of stocks can experience extreme fluctuations in the short-term. Your $40 stock may go to $10 or to $80. If you know why you own shares of a particular company, this shouldn’t bother you in the slightest. You can use the opportunity to buy more shares if you think they are too cheap or sell shares if you think they are too expensive. And if you hold onto well-valued stocks over the long-term, these highs and lows are often smoothed out. But if you are hoping to make money quickly, the volatility in stock value can work against you.
  3. Stagnation. If you invest in companies that don’t have much room for innovation or growth, then your stocks may not look like they’ve gone anywhere for ten years or more during sideways markets.

However, this is often an illusion because charts don’t factor in the single most important long-term driver of value for investors: reinvested dividends.   If you use the cash a company sends you for owning its stock to buy more shares, over time, you should own far more shares, which entitles you to even more cash dividends over time.

Over 100 years of stock market returns history shows them to be a consistently-good wealth creator.

You can own part of a business (through stock shares) without having to do any work.

If you own shares in a company that pays dividends, your share price and your dividend amount may both grow over time.

You can diversify much easier with stocks than with real estate, especially with mutual funds.

Stock investments are very liquid so your money’s not locked up for weeks or months.

You can borrow against the value of your stocks more easily than with real estate.

Successful stock investing requires an unemotional approach, which is difficult for the majority of investors.

Stock prices can fluctuate very much in the short run, which can leave inexperienced investors worried.

Dividend-paying stocks may look like they haven’t grown in value at all during sideways market conditions.

Choosing Between Stocks vs. Real Estate

Both real estate and stocks can provide long-term financial gain, and both come with risks. When choosing the right investment strategy for you, the best way to hedge against that risk while taking advantage of the potential gains is to diversify as much as you are able.

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