The Australian sharemarket returned its best year since 2009 after strong gains in banks and a lift in business confidence with the change of government and the improving market situation in the US. The S&P/ASX 200 index rose 15.1% in 2013 and it was the first time the market had closed over 5300 points since 2007. As Trustees of Self Managed Superannuation Funds (SMSF) and retail investors look to replicate similar returns in 2014, there is a common question asked if direct buying of shares or purchasing units in a managed investment fund is the best option.
While most Australians have some level of exposure to shares or managed investment funds through their superannuation holdings, knowing what’s right for you personally will depend on your own preferences around ownership. Some of the issues to consider include:
Transparency and liquidity
Owning direct shares gives you transparency of your holdings and the option to sell them straight away if there is a buyer. Most of these holdings can be viewed in real time via an online platform or a stockbroker website with live prices to calculate the value of your holdings. Alternatively, most managed investment funds are revalued once a day and the redemption of any units can take at least 24 hours sometimes longer to process.
To diversify your share portfolio you’ll need to buy shares in different industries and consider those that are not all Australian focused. This can be an expensive exercise for single stock selection, however, with a managed investment fund an investor can be exposed to a wide range of assets classes across different industries and countries. Look for managed investment funds that have exposure to a range of asset classes.
Control and investment selection
Managed investment funds employ specialists who track and analyse thousands of companies and individually select which companies suit their funds profile. If an SMSF trustee or retail investor doesn’t want exposure to a particular company in the fund, their options would be limited as investment specialists have discretion to make decision themselves.
When you purchase shares directly the brokerage costs can range $15-150 per transaction depending on the provider. Fund managers charge management fees and ongoing administration charges. To find out these costs it is very important to check their Product Disclosure Statement (PDS) before investing.
Whether you buy direct shares or a managed investment fund your individual circumstances and preferences will determine what works for you. Some of the key questions you should ask yourself before investing are:
- What are you trying to achieve from the investment – growth, income or specific exposure to countries/industries?
- Is the priority preservation of hard earned savings or can you afford to take some risks?
- What is your time frame? – short, medium, or long term
- How good are you at reading market trends or coping with volatility?
- How much time can you personally devote to managing the investment?
Review RateCity’s free Investment Funds Guide to learn more about investment funds.