I closed my last article with thoughts of a “balmy Spring” and as I write, the sun is beating down and, at last, the weeks of rain and drizzle – that have plagued us since the official announcement of a drought – are over (for the time being anyway). Alas, despite a favourable upturn in the weather, there has been no such happy outcome for the UK stock market. The gains that have been accumulated since January have evaporated, since the renewed troubles in the Euro-zone and the elections in Greece and France. It seems like the theme of volatility, that followed us through last year, may well be one that stays with us for 2012 and into next year too!

As I have said before, markets do not like uncertainty, and that is exactly what we have endured for the last couple of years now. In truth, we have had either financial or political uncertainty since 2008, originally stemming from the banking crises in the US and UK. However, the initial knee-jerk reaction created an opportunity for lump-sum investors, the last couple of years have seen the markets moving in a range of some 500 – 600 points. This is more of a saver’s market, in my opinion, and rather than taking a gamble on short-term movements in the markets, feed money in on a monthly basis, by way of a saving scheme in a collective investment. I have long been a fan of such schemes, using unit or investment trusts, to build up a reasonable fund. If, when there are set-backs in the markets, you can take advantage by adding further lump-sums, then so much the better. I am somewhat of a fan of Investment Trusts, as I think they provide better value, but they can be exposed to greater risks than mere market movements alone, due to the effect of what is referred to as ‘gearing’. This is where the Trusts are able to borrow at a certain level, to invest in further shares, thereby magnifying the gains or losses due to market movements alone. Because of this, and other peculiarities, good quality research should be undertaken, or advice sought, before buying any Investment Trusts, but in the long-term (and all investments should be considered as such – anything else is speculation) first class returns can be found. An example of which is a Trust that I purchased shares in, some years ago at 47 pence per share, that were recently trading at £3.26, However, there are always potential pitfalls. One particular Trust launched in 2000, invested solely in internet stocks – at the height of the technology boom. Within a year, it had lost almost 90% having been up by nearly 50% in the first few months. Ouch!

As I have said a number of times, I am a great believer in having lots of different eggs in different baskets, to help avoid potential disasters, and a few well-chosen Investment Trusts may be just the thing to help spread your risk.

I’m off, hoping the weather holds. I’ll be back in the Summer.

David Foot