I’d buy these 2 investment trusts to PROTECT and grow my wealth

G A Chester highlights two investment trusts that have done their shareholders proud through fair weather and foul.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Here at the Motley Fool we trumpet the merits of long-term investing in the stock market. This is because equities outperform other major asset classes over long periods of time. As such, the stock market offers the best prospects of growing your wealth and achieving financial independence.

The price you pay for the stock market’s superior long-term rewards is dips and occasional crashes in the value of your investment. Indeed, as legendary investor Warren Buffett has said: “You shouldn’t own common stocks if a 50% decrease in their value in a short period of time would cause you acute distress.”

If you can’t stomach this level of volatility, but are equally distressed by seeing the value of your cash savings gradually eroded over time by inflation, there are ways you can still grow your wealth effectively. With this in mind, I’d be happy to buy shares in Ruffer Investment Company (LSE: RICA) and Capital Gearing Trust (LSE: CGT) today.

Passive income stocks: our picks

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

These two investment trusts have similar objectives. Ruffer Investment aims “to achieve a positive total annual return, after all expenses, of at least twice the Bank of England Bank Rate.” Capital Gearing wants “to preserve shareholders’ real wealth and to achieve absolute total return over the medium-to-longer term.”

Protection

It hasn’t been a good year for the stock market so far. The table below shows the year-to-date performance of the FTSE 100 and the two investment trusts.

  Year-to-date return (%)
FTSE 100 (9.7)
Ruffer Investment (2.2)
Capital Gearing 1.0

As you can see, both trusts have outperformed the Footsie, with Capital Gearing even managing to deliver a positive return. But what about when the stock market suffers a real meltdown?

Between 15/6/07 and 3/3/09 the FTSE 100 dropped a massive 47.8%. Over this same period, Ruffer actually gained 31% and Capital advanced 13.4%. However, the two trusts did experience declines ahead of and through the early part of the Footsie bear market. But these were relatively mild. Ruffer’s peak-to-trough decline was 14.7% (2/5/06 to 13/8/07) and Capital’s was 12.9% (28/12/06 to 31/10/08).

Furthermore, an investor holding both trusts would have seen only single-digit falls. During the period of Ruffer’s 14.7% decline, Capital dipped a mere 3.1%, giving an average fall of 8.9%. During the period of Capital’s 12.9% decline, Ruffer gained 8.4%, giving an average fall of just 2.3%.

Growth

The trusts have delivered excellent downside protection relative to the FTSE 100, but what of growth? The table below shows 10-year annualised total returns (capital growth plus dividends) for the index and the two trusts.

  10-year total return annualised (%)
FTSE 100 10.1
Capital Gearing 9.6
Ruffer Investment 7.3

As you can see, Capital and Ruffer have delivered very decent returns (well ahead of inflation), but have lagged the return of the FTSE 100. Because they have one eye on protecting against downside risk, the trusts will never fully participate in the kind of equities bull run we’ve seen over the last 10 years. Currently, both have less than half their assets in equities. They have around a third in index-linked gilts and the remainder in cash, gold and various other assets.

Despite their similar objectives, Ruffer’s and Capital’s allocations to different asset classes, individual holdings within those classes and the performance of their share prices do differ to a greater or lesser degree at any one time. As such, I see merit in holding both trusts.

Amazing Nerd Stock smashes FTSE with 1,346% gains

What makes this company so extraordinary?

It has a cult-like following of nerdy fans who tend to spend lots of money…

potentially handing investors market-beating gains in any economy.

Though past performance does not guarantee future results, last year, this amazing company saw:

  • Double-digit revenue growth - to a total £470,800,000
  • Profits explode 46%
  • Insiders buying a monster £492,000 of shares

…Setting investors up for - what could be - another decade of spectacular returns.

Want to consider joining them?

Then grab this special report: ‘One Top Growth Stock from The Motley Fool’ which includes both the risks and opportunities.

Secure your FREE copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Middle-aged black male working at home desk
Investing Articles

Here’s how I’m trying to build up my ISA to earn £10,000 passive income each year

I've been working to build some passive income for my retirement for years. Here's how I'm using the stock market…

Read more »

Elevated view over city of London skyline
Investing Articles

Could this 5.8%-yielding FTSE 250 share storm back in 2025?

Christopher Ruane weighs some pros and cons of a FTSE 250 share he owns that has had a rough few…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Kier Starmer aims to make the UK an AI superpower! 2 FTSE stocks are poised to benefit

This pair of FTSE stocks look set to benefit long term as the UK government plans to tap into the…

Read more »

British Pennies on a Pound Note
Investing Articles

Was this penny stock a silly purchase?

This penny stock has fallen in value by over half in the past five years. Here our writer explains why…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

After a stunning 2024, could IAG shares still go higher from here?

Christopher Ruane explains why he sees some grounds for optimism that IAG shares could move even higher -- and whether…

Read more »

Investing Articles

Searching for passive income? Here are 2 top dividend growth shares to consider!

These FTSE 100 and FTSE 250 dividend shares are tipped to lift dividends over the next two to three years,…

Read more »

Investing Articles

Should I buy 29,761 shares in this FTSE 250 dividend REIT for £1,000 a year in passive income?

Stephen Wright's wondering whether it's a good idea to buy shares in a FTSE 250 REIT with a highly reliable…

Read more »

Dividend Shares

A 12.65% yield? Here’s the dividend forecast for this FTSE income share

Jon Smith talks through the2026/27 dividend forecast for an income stock that already has a double-digit yield but could go…

Read more »