Why are investment trusts good for retirement income?

THERE are no givens when it comes to investing. It’s a case of putting your money to work now, so that it (hopefully) grows over time. 

But what if you’re looking for a more reliable income, especially at retirement? Are investment trusts worth considering? In a word, yes. And here’s why.

Why do people turn to investment trusts for reliable income?

Unlike other types of funds, investment trusts don’t have to pay out all their net income each year. In fact, they can save up to 15% each year in revenue reserves. And they are allowed to distribute these reserves when the going gets tough, so that it smooths out dividend payments over time - creating a more consistent source of income. So, if you’re looking for a more reliable income in your retirement, investment trusts are certainly worth a look at, as part of a well-diversified portfolio.

Of course, it’s important to remember the value of your investments could fall and dividends aren’t guaranteed.

What else is unique about investment trusts?

Unlike standard funds, investment trusts are structured as companies and listed on the stock market. As a result, investment trusts only have a fixed number of shares in issue, which makes them closed funds. Their share price moves up and down depending on the ebb and flow of demand for those shares.

Because of this, the underlying value of all the assets in the portfolio (otherwise known as the net asset value, or NAV) and the share price don’t always match. If the share price is below the NAV price (which is published each day), the investment trust is said to be trading at a discount - so it’s a bit like buying something on sale. If the share price is above the NAV price, it’s trading at a premium and you’ll pay more.

There are five investment trusts in Select 50 - our favourite funds, chosen by experts. I’ve listed them all out for you below. You can read about why the Edinburgh Worldwide Investment Trust was chosen by Tom Stevenson as one of his fund picks for 2023.

At the time of writing all five were trading at a discount. Everyone loves a bargain, but always remember to look before you leap. There may be a good reason for shares to trade at a discount to net assets if it is reasonable to expect the NAV to fall in future.

When choosing an investment trust - or any investment for that matter - do your research. Look under an investment’s bonnet to check that you actually want to own the shares held inside it. A discounted investment trust may offer value, but the trust will only be able to pay dividends on a regular basis if the underlying companies are healthy - so check if the trust continues to pay steady dividends in times of crisis.

Select 50 investment trusts

Always read the full fund information before making a decision. You can find this in the links below.

Need more help?

We’ve got plenty more information about investment trusts here - in this dedicated section of our website. You can also find out the top 5 investment trusts Fidelity Personal Investors bought last month here.

If you’re looking for more of a personal recommendation, you might like to think about financial advice. You can find out more about financial advice here.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Funds in the property sector invest in property and land. These can be difficult to sell so you may not be able to sell/cash in this investment when you want to. There may be a delay in acting on your instructions to sell your investment. The value of property is generally a matter of a valuer's opinion rather than fact. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). Select 50 is not a personal recommendation to buy or sell a fund. The shares in the investment trust are listed on the London Stock Exchange and their price is affected by supply and demand. The investment trust can gain additional exposure to the market, known as gearing, potentially increasing volatility. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.