The Association of Investment Companies (AIC), in association with Investors Chronicle, is offering readers the chance to win £5,000 to invest in an investment company of their choice.
We all know the benefits of investing for the long term and this is something investment companies specialise in. This year marks 152 years since the launch of the first investment company, F&C Investment Trust, and there are now 24 investment companies which are over 100 years old. The investment company industry’s assets also reached a record £209 billion in September.
But how do you decide if an investment company is right for you? And how should you choose one? The answers will depend on your circumstances, needs and attitude to risk.
Strong long-term performance
Everyone is aware that past performance is no guide to future returns, but it’s obviously something to be considered. When looking at performance data, it makes sense to look at a variety of time periods and also to look at performance for individual years to give a clearer picture of how a company has performed in different market conditions.
Investment companies cover a diverse range of assets and the AIC provides a wealth of information to help investors along the way. Its website www.theaic.co.uk offers performance data, as well as information on gearing (borrowing), discounts/premiums, dividends, charges and portfolio and management information. You can even download the latest factsheet and annual report of an investment company.
The investment company sector has an unrivalled dividend track record. This is because investment companies have the flexibility to retain some of the income they receive in good years and use it to boost dividends in leaner ones. Known as ‘dividend smoothing’, this has enabled many investment companies to increase their dividends through both good and bad times. Although dividends are never guaranteed, the structure has helped many investment companies consistently increase their dividends over multiple decades and through times of market stress. There are 19 ‘dividend hero’ investment companies that have increased their dividends each year for 20 years or longer. There are even five dividend heroes that have consecutively increased their dividends for 50 years or more!
The investment company structure lends itself well to innovation, as the growth of specialist sectors in areas such as infrastructure, renewable energy, healthcare and specialist property demonstrates. In addition, some companies are using specialist investment strategies that are difficult to replicate elsewhere, such as in private equity and venture capital trusts (VCTs). If you are looking for a company that’s a little bit different, the investment company sector offers a good deal of choice. But there are plenty of more mainstream investment companies, too, investing in areas such as UK or global equities.
The past 152 years have seen two World Wars, the Great Depression, the tech boom (and bust), the 2008/9 financial crisis and now a global pandemic. We never know what’s around the corner, but investment companies’ 152 years of history demonstrate the strength and durability of the investment company structure, which is just as relevant for today’s investors.
For more information on investment companies, visit www.theaic.co.uk
How many years of annual dividend increases do investment companies need to become an AIC dividend hero?
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