The cheapest providers to invest in investment trusts
3 cheapest providers to invest in investment trusts with an ISA or pension
By Boring Money
28 April, 2023
Investment trusts are a popular option for those who want to invest for income, thanks to their reputation for paying out regular dividends, and are also a great opportunity for thematic investors to tap into their interests with themes such as clean energy, technology, financials and more.
If you’re investing in investment trusts – or you’re thinking about it – you might be wondering which platforms and providers are the cheapest, so you don’t have to worry about your gains being eaten away by additional charges and fees at every turn.
We’re here to help. Our research analysts have scanned the market to find the cheapest platforms to buy and invest in investment trusts. Plus, they've also shared some ideas for an investment strategy that can help you to reduce costs and protect your portfolio from price volatility.
How to invest in investment trusts
When it comes to investing in investment trusts, a cost-effective way to go about it is to use a method called “regular investing”. This is when you set up a direct debit to put a specific amount of money into a particular investment every month – in this case, an investment trust.
Regular investing
Rather than investing whenever the mood strikes you, regular investing is a great way to make investing part of a consistent routine. All you have to do is set up the direct debit and then let your bank and your chosen platform do all the hard work. You might choose, for example, to arrange a direct debit of £100 into an investment trust the day after you get paid every month.
Regular investing in this way helps you to avoid trying to “time the market”, where you attempt to predict what’s going to happen in the stock market and invest accordingly (which is always speculative and nothing is ever 100% guaranteed). Instead, you focus on “time in the market”, where you sit tight with your investments over a longer period of time and allow them to ride out any dips or troughs they might encounter in the short-term.
Dollar-cost averaging
Besides the benefit of time in the market, there’s also a cost benefit to regular investing. It allows you to engage in a strategy known as “dollar-cost averaging”, which is often considered a sensible option when markets are volatile and the price of shares are going up and down frequently. This just refers to the act of setting up a direct debit and investing the same amount of money into your chosen investment at regular intervals.
Dollar-cost averaging can enable you to lower the average cost per share and reduce the impact of price volatility. Here’s a handy example:
Scenario 1
Timeframe | Investment Amount | Price per share | Number of shares bought | Total value of holdings |
Month 1 | £100.00 | £10.00 | 10.00 | £100.00 |
Month 2 | £0.00 | £9.00 | 0.00 | £90.00 |
Month 3 | £0.00 | £9.50 | 0.00 | £95.00 |
Let’s say you bought 10 shares in Month 1. This investment would have cost you £100, but because the value of the share in Month 3 is lower than the £10 per share you paid at the start, your investment would actually only be worth £95 at the end of Month 3.
Scenario 2
Assume instead that you would have split your £100 investment across Month 1 and Month 2, buying £50 in each month. You would have bought:
Timeframe | Investment Amount | Price per share | Number of shares bought | Total value of holdings |
Month 1 | £50.00 | £10.00 | 5.00 | £50.00 |
Month 2 | £50.00 | £9.00 | 5.56 | £95.04 |
Month 3 | £0.00 | £9.50 | 0.00 | £100.32 |
If 1 share is then worth £9.50 in Month 3, the value of your investment would be £100.32. This is because the growth from buying more shares at a lower price point in Month 2 would outweigh the loss in value from your Month 1 investment.
Naturally, the opposite impact would occur if share prices increased in Month 2 and then came back down in Month 3, however in general this regular investing strategy can help in dealing with market volatility and provide benefit to investors.
Charges to look out for
There are a couple of charges to keep an eye out for when investing in investment trusts, as these fees could eat into any gains you make from the performance of your investments.
Dealing charges
Many platforms have reduced dealing charges for regular investments, with providers such as AJ Bell, Fidelity and Barclays charging between £1 - £1.50 per transaction compared to normal dealing fees between £6 - £10. Some even scrap fees for regular investing altogether; Hargreaves Lansdown and interactive investor are two notable platforms which have no dealing fees at all for regular investing. Just bear in mind that charges may still apply if you decide to sell your shares.
Platform admin charges
Many providers charge an ‘admin’ fee for using their services. This can be a flat fee or a percentage based on the value of your holdings (these are more common). On a positive note, many platforms cap admin charges on shares and investment trusts, including the major players like Hargreaves Lansdown (£45 per year), AJ Bell (£42 per year) and Fidelity (£90 per year). This is not the case for all providers, though - Bestinvest, Charles Stanley and Willis Owen are examples of platforms without a special cap on share platform charges, making them among the most expensive providers for large portfolios of investment trusts.
Unlock this article
