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Getting your investment balance right

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Investing is all about making your money work harder. That might mean working it harder to grow its value and thereby its future buying power, or to generate an income, or as is often the case, seeking a blend of both growth and income.

Back to basics
Whatever outcome you are looking for there are things to consider.  

Timeframe is key – the timescale over which you are investing might be the years you have until retirement or the clock could be ticking towards the kids heading off to university and all the related expenses. If you choose to invest in equities (as opposed to cash) then it is wise to view this as a medium to long-term commitment.  Why?  Because markets can fluctuate markedly (particularly over shorter periods) so it is wise to give your investments time to ride out any dips that happen along the way.  

Consider risk - you also need to think about how much ‘risk of loss’ you are comfortable with.  Cash savings with a bank or building society are relatively safe but the value and income from shares and other asset types can go down as well as up so you need to bear this in mind.  There are ways of countering investment risks, many of which – including diversification and professional investment expertise - are hardwired into investment trusts.  

Perspectives on growth and income

Growth investing
– investing for ‘growth’ means seeking alternatives to cash that have more scope to increase in value over the long term.  There are plenty of options available including investment trusts which target the potential of smaller companies (businesses where scope for growth is often at its most potent) or geographic regions like Europe or the emerging markets.  Private equity can also be an attractive option within a growth orientated portfolio and it’s important not to overlook the steadier characteristics of highly diversified global trusts.

Income investing – there are plenty of options for those seeking an attractive income.  Dividends from shares bring equity-orientated trusts into consideration and commercial property has also historically proven capable of generating an attractive and reliable income. Like growth-orientated investors, income seekers can benefit from a broader geographic remit as many companies in Japan and the emerging markets are beginning to prioritise dividend payments to shareholders.

Future thinking
Although your need for income might be an immediate one, it is important to think about its longer-term sustainability, particularly if it is to be relied upon for a long period such as in retirement. A balanced approach is  sensible.

For income from equities, that can mean picking companies whose businesses can ‘sustain’ and hopefully grow the amount of money they return to shareholders through dividend payments. This can be more sensible than simply focusing on the highest dividend payers. Why? Because businesses that cut or suspend dividend payments because they can’t sustain them can see a sharp fall in their share price.  

The same principles apply in commercial property. The manager of a property trust may deem it sensible to invest in buildings where there is scope to enhance value through development and refurbishment, thereby increasing rental potential as well as a building’s value.  

The power of income
Even if you are investing for growth it makes sense not to overlook the important contribution that income can make to an investment’s ‘total return’ over time. In the chart below, the blue line represents the capital return of the FTSE All-Share index over a 20-year period and the red line is the performance of the same index with any dividends received reinvested.  It is clear that even for growth investors income matters!

Source: Lipper IM

The value of your investments can go down as well as up and you may not get back the original amount invested. 


At BMO, our aim is to help our clients overcome the challenges they face and deliver the investment outcomes they seek. We've been helping clients with their financial needs for over 200 years.

A lot has happened since 1817, including the launch of the world's oldest collective investment fund vehicle - F&C Investment Trust over 150 years ago. This fund made investing more accessible to individual investors and we are proud to still manage it today.

We currently manage 10 Investment Trusts, providing a range of investment opportunities including access to equities, bonds, property and private equity. Each trust has different aims and objectives with the option of capital growth, income or a combination of the two and with a specific regional focus or with a global remit.

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