Anonymous
I've some advisors suggesting to buy UT as part of my portfolio. Currently, I have RSP in ETF and some SG stocks, and REITs, on top of my cash savings and insurance. I'm building my portfolio for retirement and I'm 35.
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Sin Ting So
19 Oct 2019
Head Of Client Experience at Endowus
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Elijah Lee
17 Oct 2019
Senior Financial Services Manager at Phillip Securities (Jurong East)
Hi anon,
UTs can definitely be considered as part of a balanced portfolio. The real question, however, is which UT to buy, as well as how much % your UTs should take up in your overall portfolio. While some UTs underperform their benchmarks (usually an ETF), others outperform and it is these that you should be looking to buy. RSP into UT is also zero cost on the right platform and that essentially removes the cost of investing, compared to the brokerage charges on shares, etc.
As you are in your mid-30s, you will probably want to take a step back and look at your current portfolio to see if it will be on track to where you intend to be when you retire. You will want to ensure that you have an overall strategy/thesis in place to invest, maintaining a war chest for market opportunity, consistently building your portfolio through RSP (be it ETF or UTs), and ensuring that you have a framework that will serve you in your 40s and 50s and finally when you retire. It is also important to understand that retirement, being your longest holiday, will necessity careful planning in order to ensure that your income assets will be able to provide you with the income stream you need.
If you have more specific questions, feel free to reach out and you can get a more detailed answer. For now, based on your post, these general guidelines should help you to stay focused and plan the big picture.
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Dear Anonymous,
It's great that you're building your portfolio for retirement already and planning ahead. I think before you decide whether to buy unit trusts or ETFs, it's more important to decide on the overall holistic allocation across your cash savings, insurance and also CPF. After you decide on your asset allocation, you can find the most appropriate unit trusts or ETF to implement it.
Some food for thought on the differences between unit trusts and ETFs:
Both Unit Trusts and ETFs are vehicles to gain exposure to a basket of individual securities. They can both be active or passive investment products. The main difference is that exchange-traded funds (ETF) are traded like a stock throughout the day on a stock exchange. As a result, ETFs have a bid-ask spread, and they are focused on providing investors the opportunity to trade regularly, especially intraday. Unit trusts trade at the net asset value (or the underlying value) of the fund, which is based on the market closing price that day, and is more suitable for long-term investors who do not need intraday liquidity. Index Unit Trusts and ETFs are designed to closely track benchmark indexes passively at low cost.
Are unit trusts more expensive than ETFs?
There are a wide range of ETFs and unit trusts available with varying fee structures. Although ETFs are generally cheaper, there are certain unit trust providers that have management fees in-line with or below ETFs for similar and even better-implemented exposure. There are also typically multiple share-classes for unit trusts, which will have varying associated fees. It's important to understand the fees involved for ETFs and unit trusts, and be critical of what you are buying.
Other potential fees for investing in Unit Trusts:
Hope this helps!