I had a disappointing experience with unit trusts. On the advice of a financial advisor, I invested in them when I knew little about investing.
Unbeknownst to me, the commissions were exorbitantly high, and after two years, I ended up with a loss. This left me wary of unit trusts. Then I discovered ETFs (Exchange-Traded Funds), and I regret not learning about them sooner.
Recently, I watched a YouTube video by My Money TV on this topic, and I couldn’t agree more with the guests’ insights.
Here’s a quick breakdown of how unit trusts and ETFs compare:
|
Factor |
ETFs |
Unit
Trusts |
|
Learning
Curve |
Great for
learning; transparent, exposes investors to market dynamics. |
Easier for
beginners with limited knowledge; less focus on market mechanics. |
|
Time
Commitment |
Requires some
time to research and monitor; suits hands-on investors. |
Minimal
effort needed; ideal for hands-off investors. |
|
Minimum
Investment |
Often as low
as $10 via digital platforms; lower barrier to entry. |
Typically
$500-$1,000; higher entry point. |
|
Fees |
Lower fees
(0.1%-0.5% expense ratio); cost-efficient. |
Higher fees
(1%-2% expense ratio) plus sales charges; less cost-efficient. |
|
Fund
Manager Performance |
Tracks
indices; consistent with market returns, outperforms after fees. |
Actively
managed; most underperform indices after fees. |
|
Service
Quality |
Less human
interaction; relies on brokers or robo-advisors. |
Access to
advisors; quality varies, some prioritize commissions. |
|
Switching
Funds |
May incur
brokerage fees; some platforms offer commission-free trading. |
Often free
within the same provider; more flexible for switching. |
|
Seeking
Advice |
Less reliance
on advisors; requires self-research on funds. |
Advisors
available; ask about their track record and fund investments. |
|
Investor
Mindset |
Suits those
comfortable with market fluctuations; focus on diversification. |
Appeals to
those prioritizing perceived safety; less market exposure. |
|
Best For |
Cost-conscious,
hands-on investors who want to learn and control investments. |
Beginners
seeking simplicity, professional management, and human guidance. |
ETFs offer significant advantages over unit trusts, making them a better choice for most investors.
Their lower costs mean more of your money stays invested, compounding over time.
The transparency and flexibility of trading ETFs like stocks provide greater control and ease of access.
Additionally, their passive management often results in performance that matches or exceeds actively managed unit trusts, which rarely justify their higher fees.
For cost-conscious investors seeking simplicity and efficiency, ETFs are a clear winner.
Disclaimer: This post is for informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor before making any investment decisions.