Over the previous decade or so, the Scottish Mortgage Funding Belief (LSE: SMT) has finished very nicely by investing in electrical car (EV) maker Tesla (NASDAQ: TSLA).

Certainly, Scottish Mortgage’s Tesla holding turned so precious at one level that it decreased it, in order that one share didn’t have too dominant a place in its portfolio. Even so, Tesla stays the belief’s fourth largest holding and accounts for 4.3% of its portfolio.

Occasionally, I contemplate including Tesla to my portfolio. I feel the enterprise has a promising future and could be completely satisfied to purchase its shares if I discovered the valuation enticing. Up to now although, I’ve not made such a transfer.

If Tesla’s valuation turns into enticing to me, ought I to purchase the shares straight – or might it make extra sense for me to achieve publicity to the favored development inventory by choosing up some Scottish Mortgage shares as a substitute?

Answering that query helps illustrate some vital factors to think about extra typically when investing.

Significance of diversification

One is diversification, the concept of spreading danger — not placing all of my eggs in a single basket.

Tesla’s gross sales volumes are rising shortly and that might kind the premise of massive revenue development, boosting the share worth. Then once more, elevated competitors and adjustments to authorities subsidies might see Tesla income fall in coming years. Which may harm Tesla shares, which have seesawed dramatically over the previous few years.

Think about I had £20,000 to take a position. I might unfold it throughout quite a lot of shares, probably together with Tesla.

However what if the one cash I used to be capable of make investments was £300? Commissions and dealing expenses might eat into that if I unfold the £300 too thinly. However I might nonetheless need the advantage of diversification.

That’s the place shopping for shares in an funding belief might assist me meet my targets. Shopping for £300 value of Scottish Mortgage shares, I might solely be making one transaction. However I might get pleasure from diversification, because of its broad portfolio.

Paying the intermediary

Then once more, though I’d be capable of scale back some prices like that, may I be including others?

In any case, Scottish Mortgage has constructed that diversified portfolio by using funding managers to sift via shares and resolve what to purchase. An funding belief is in the end a type of intermediary. That provides prices for shareholders. Scottish Mortgage shares carry an ongoing annual cost of round 0.3%. That will sound like small beer however, over the long run, such charges can add up.

Backing winners

What that cost provides me although is entry to a belief administration technique of investing early in development tales like Tesla. Scottish Mortgage holds shares in SpaceX as nicely. I couldn’t purchase these shares straight on a inventory alternate.

There are dangers in proudly owning Scottish Mortgage shares. The corporate’s heavy tech publicity means its share worth might fall if development shares proceed to lose steam as buyers emphasise profitability in an surroundings of elevated rates of interest.

However I just like the diversification, confirmed technique and present valuation of Scottish Mortgage shares.

Proper now, I might be completely satisfied to spend spare money shopping for them. Certainly, I might quite get my Tesla publicity that manner than shopping for in on to the EV maker at its present share worth.