Keep your head above water with a pooled fund

SINCE mid-July, when the stock market reached its peak, share prices have fallen by more than 20 per cent in the UK and US. Around the world, some have been hammered even more - Brazil, for example, is down almost 50 per cent.

Yet history shows that equities bounce back and outperform any other conventional investment, such as building society accounts. The 30 per cent stock market fall seen in October 1987, for example, was recovered in almost a year.

Few of us search out our own equity investments. Instead, we buy into ready-made portfolios through collective funds.

Unit trusts

Most investors buy unit trusts, which offer the chance to back a fund specialising in anything from UK blue-chip shares to technology or the Far East. Ian Millward, of independent adviser Chase de Vere, says: "Spread your money around. In the present market, I would be looking at balanced funds with a spread of equities and fixed-interest stock. Look at the larger groups that have a broad range of funds available."

You can invest through lump- sum or regular savings, using a PEP. When your allowance is used up, you can still put money in but the investment is taxable.

Don't worry if you don't have several thousand to stick into a fund. Saving pounds 50 a month is a good idea because if you invest on a regular basis, over the long term, the average price you pay for units should be less than the price paid when you sell.

Oeics

Open-ended investment companies were only introduced last year but a few leading groups have already changed their unit trusts into Oeics. The main plus is that they have the same price for their units, whether you are buying into the fund or selling up. Unit trusts have two prices: an offer or buying price, and a bid or selling price.

An Oeic gives investors more flexibility to hold several funds in an "umbrella" portfolio. However, there are disadvantages, and unit trusts will also be offering a single price from next year. "A single-price unit trust is for those who don't want an umbrella fund," says independent adviser Roddy Kohn. "It avoids contagion. If one of the sub-funds in an Oeic suffers a serious problem, it can seep into the others to their cost."

Investment trusts

These are companies in their own right but you can invest in exactly the same way, buying shares every month or using a lump sum.

Mr Kohn says: "They are not for widows and orphans, and you need to do your research properly. While they are having a sticky time at the moment, they can offer great returns."

One of the (risky) benefits of an investment trust is that it can borrow money if the manager thinks that is a good time to buy shares. This is known as gearing. Money is borrowed at low interest rates in the hope of far greater capital gains. "Investors should not worry about today's discounts and gearing," says Mr Kohn. "Look at the better funds with good managers."

Investment trusts have no initial charge, just the usual 0.5 stamp duty that everyone pays when buying shares. Annual charges are also low, usually well under 0.5 per cent - much less than other types of collective fund.

The investment trust trade body, the AITC (0171-431 5222), publishes a number of fact sheets to help you choose. But be prepared for a more volatile ride than you will usually get with unit trusts.

recommended funds

UNIT TRUSTS AND OEICS

Barclays Funds 0181-522 4000

Fidelity Investment Services 0800 414 161

Gartmore Fund Managers 0171-782 2000

HSBC Unit trust Management 0800 181 890

Invesco Fund Managers 0171-626 3434

M&G Securities 01245 390 390

Mercury Fund Managers 0800 445 522

Perpetual Unit Trust Management 01491 417 000

Save & Prosper Group 0800 829 100

Schroder Unit Trust Managers 0800 526 535

Standard Life 0800 333 353

Threadneedle Investments 0800 068 3000

INVESTMENT TRUSTS

Mercury European Privatisation 0171-280 2800

TR City of London 0171-638 5757

Witan 071-638 5757

Foreign & Colonial 0171-628 8000

Alliance 01382 201700

Kleinwort Charter 0171-956 6600

Gartmore European 0171-782 2749

Henderson Strata 0171-638 5757