61st FINANCIAL SURVEY

Purposeful Investment III NORMAN MILLER Full Service 111 LAURENCE CORLEY Still Too Inarticulate? 111 JOHN CRAWLEY New Look for Insurance ■ FRED DORRIEN ICFC Today III THE RT. HON. LORD PIERCY, CBE Building Societies: The Present Scene I/ KEITH KNOWLES

Purposeful Investment

By NORMAN MILLER DESPITE the bland assumption made a short time ago in a pamphlet* issued by a study group formed by the Political Council of the

Junior Carlton Club that . . there is basically no reason to suppose that someone who can understand the complications of the pools or of racing "form" cannot distinguish between a gage' company and a bad 'one,' the risks involved in investment have once more been highlighted by the recently reported case of a young student of Trinity,College, Dublin, having lost nearly £3,000, almost half his capital, through investing in a company which is in the process of being liquidated.

This investor could possibly be faulted in putting so much of his savings into one security, but otherwise he appears to have acted pru- dently. He bought preference shares and he is reported as saying that he invested only after noting that the company concerned had govern- ment backing and a responsible directorship which had expressed confidence in the future of the company.

Until a scheme is produced for insuring against the possible loss of investment capital (just as other capital assets such as property and precious jewellery are protected) investors will always run the danger that the value of their shares might be less than the purchase price when they come to be realised. To minimise the possibility of loss, and, indeed, to maximise, the possibility of capital appreciation and increasing income, it has long since been recognised as im- portant to take the advice of investment experts, and to spread one's resources over the widest possible selection of stocks and shares.

There is obviously, however, not one form of saving or one portfolio which will suit every investor. The- main problem is not primarily the task of buying individual shares on their own merits, but of ensuring that one's portfolio, initially and continuously, is so constructed in its various parts that as a whole it forms a combination of well-balanced risks capable of achieving the purpose for which the investment is made.

Of the two tasks, first, of compiling the original portfolio and, second, of keeping the list of investments periodically under review, the second is by far the most difficult. The lucky few have the time and are sufficiently qualified and well-informed to be able to undertake it, or have access to-the studies necessary to judge *OVk'NING CAPITAL. (Conservative' Political Centre. 6d.)

the effect of changing political, economic and social factors on the companies in which they are invested, and to make the right consequential changes in their portfolio. Others with brokers' advice, by reading daily city columns and relying on the specialised financial press to provide analyses of company reports and accounts, ob- tain so much enjoyment out of managing their own affairs that it becomes a hobby. Even if they sometimes miss their target, they have their com- pensation. But the majority of us fall into neither of these categories. We realise our limitations and often, if the truth were known, regard looking after money matters as a bore because we are continually having to take decisions which by training and knowledge we are ill-equipped to make. Moreover, time spent on these matters means there is less for activities which give more personal and immediate satisfaction.

Although through natural cupidity we may envy those who play the market and who seem always to be talking about their capital gains, our prime consideration in the long run is to find a combination of investments which will achieve the ends we have in mind with the mini- mum of mental strain and of attention to detail. For investors in this category, among whom, I suspect, fall a vast number of the professional classes—such as service people, teachers, civil servants, solicitors, surveyors and the like---of the higher-paid manual workers, of housewives and of young savers, a unit trust is tailor-made. Each unit trust is nothing more than a con- glomeration of very different and carefully selected risks put together in a portfolio with the object of obtaining a definite end. In the last resort unit trust management companies do not sell shares as such, but offer the public a wide variety of investment opportunities which in general terms correspond with the long-term aims of most investors. They provide, so to speak, facilities for planned and purposeful in- vestment. Some aim to give a high immediate return; others set out to combine capital security with stability of income; many lean mainly to- wards providing capital growth; a few even cater for those whose principles will not permit them to invest in tobacco or alcohol shares; all pro- vide means of protecting savings from the effect of inflation.

In practice a unit trust is nothing more than a convenient and economical method by which money subscribed by. many people is pooled in a trust fund, the investment and management of which is subject to the legal provisions of a deed

approved by the Board of Trade. Trustees, usually banks or insurance companies, hold the securities in which the trust money is invested and collect the dividends which these securities pay. The investment of the fund is undertaken and supervised for a fee by professional managers advised by experts. By buying units in a trust each investor acquires a fractional interest in the block of securities owned by the fund, while the dividends received from those investments form the income of the trust. The net income is paid, generally twice yearly, to all participants in the fund in proportion to the size of their holdings.t

The price of units, which is usually fixed daily, is based on the value of the securities in which the fund is invested. Therefore, investors cannot entirely escape the risks which are in- herent in any investment in stocks and shares, for particularly in the short term, the value of the underlying securities might fall as well as rise. But what can be expected is that the price of a unit will not be subject to the large fluctuations which individual shares sometimes suffer, and what can be completely avoided are the risks attached to any one particular share.

Provided they are regarded as medium- or long-term forms of investment, unit trusts, taking into account all the services they provide, offer advantages to the investor, be his capital large or small, whether he is acting on his own account or for trustee or pensions funds, unequalled by any other means of investment.

Once an investor has decided to use the unit trust form of investment it remains only for him to choose the trust which best suits his personal circumstances. This can often be settled in con- sultation with a bank manager who has close knowledge of his clients' needs. The\ unit trust having been decided, the units are easy to buy (or, for that matter, to sell when the time comes) either directly from the managers or through such agents as accountants, banks, solicitors and stockbrokers. One has then acquired a trouble- free investment which no longer needs the con- stant attention which the owner of shares in many separate companies has to give to his port- folio. Also one has adopted a plan of investment which in all probability will achieve its purpose.

t More details about unit trusts are set out in A Plain Man's Guide to Unit Trusts, which is ob- tainable free of charge from Association of Unit Trust Managers, 306-8 Salisbury House, Finsbury Circus, EC2.