A share is a small parcel of a single company you can purchase on a stock exchange (if it is listed) or privately from another owner (if it is an unlisted share). In effect, you own a small part of that company and benefit from any capital growth in the company or distribution of profits (dividends).
On the other hand, purchasing into a managed fund means you buy ‘units’ not shares. Rather than buying a small piece of one company, you’re buying a small piece of a unit trust that might own shares of many companies, cash holdings, bonds or other types of investments. The overall strategy and day-to-day direction of a unit trust is in the hands of the fund manager and, unlike in the case of shares, you have no voting rights.
- Direct ownership with no layers between the investment and the owner
- There are no ongoing fees
- The tax benefits are more transparent
- Franking credits are direct
- They provide voting rights at most company meetings
- It is hard to achieve diversification as one share is only ever exposure to one company
- Buying widely for diversity can increase your brokerage costs
- You have no investment manager to turn to for advice
Managed Funds offer:
- Potentially good diversification
- Investment professionals managing the fund investments
- When seeking diversity, brokerage costs may be lower than shares
As for their disadvantages:
- Management fees can sometimes be a problem
- The overall worth can be harder to track
- You have no voting rights
- Tax benefits may not always be fully passed on by the fund manager
The world of Managed Funds is an amazingly diverse investment area with an equally wide degree of successful, and less successful, managers. Individualmanagers may specialise in buying anything from undervalued companies, domestic/international shares, to government debts and fixed interest style investments. So to minimise the guesswork, we use our own unique experience along with leveraging research houses including Morningstar, Lonsdale Securities and Van Eyk to ensure you only invest with the best.
Everyone has a degree of risk they’re willing to accept within their investment portfolio. Some of us are very cautious while others are happier with higher levels of risk. None is right and none is wrong, it’s just who we are.
Asset allocation is ensuring your portfolio is constructed so as to reflect this degree of risk you are comfortable with. For a low risk investor, this may mean having a greater percentage of low risk cash or government bonds in their portfolio for example.
Allocation is also important in ensuring you have a reasonable level of diversification in terms of the geographic representation of your investments. The Australian share market, for example, represents only 2.6% of the global share market so limiting your investments solely to it automatically rules out any opportunities to be found in the other 97.4%.
The smart place to start is by talking to experts such as ourselves. We can help you determine what kind of investor you are and what sort of portfolio feels right for you? Having done so, we can then start laying the foundations to help with your own wealth creation.