For most of us, Christmas is a special, but also expensive, time of the year. Gifts for children and grandchildren, travel and holidays can all add up. The cost of festive food and drink can be tough on our finances as well as our waist! These seasonal expenses often become more noticeable in retirement due to the absence of a wage. As a result, this period can often leave us thinking about money, and more specifically, how to generate and manage an income.
Investing in direct shares and managed funds is something that may be familiar. Most Australians have experience with each investment option, whether that be directly or through their superannuation fund. However, when the time comes to make a choice between these two options, how do you go about making that decision? Often it simply comes down to your personal circumstances and objectives, whether you are a conservative or aggressive investor and so on.
There is no right or wrong answer here. Shares and managed funds both provide a means of generating investment growth. There are variables however, and there are some important differences between the two that deserve consideration.
Australians who wish to invest in the local share market are restricted by the size of the ASX; however, managed fund investors can pool funds with other investors and gain access to investment markets that would generally be unavailable to individual shareholders.
Because share investors own a percentage of the company (through their shares), they are entitled to have a say (by way of voting) in how their investment is managed. In managed funds, investors own units in the underlying investments, but don’t have input in how the investment is managed. There is, however a certain convenience that comes with the investment manager handling the day-to-day fund administration.
Investors are usually required to buy a minimum number of shares in each transaction. In the case of managed funds there is also a minimum investment amount, but the fund manager can use their discretion to accept lesser amounts.
Share investors are subject to a brokerage fee each time they buy or sell shares, however they pay no ongoing fees. In a managed fund, the manager charge a fee to enter or exit an investment. There is also an ongoing fee paid to the fund manager to cover the costs of the management and administration in line with regulatory requirements.
Diversification is an important factor in managing your share portfolio. In order to diversify, investors can purchase shares in different industries and companies that trade on Australian or international share markets. However for managed funds, investment options are categorised by class. Classes include shares, fixed interest, listed or unlisted property, hybrids and cash.
Share investors select their shares and choose when to buy and sell. Managed funds are professionally managed with no input from investors.
Whatever your preference, it is always a wise choice to speak to a licensed adviser who can help you investigate your options, and examine what is most suitable for your personal circumstances. The Australian Securities and Investment Commissions website, MoneySmart is also a useful resource for making sense of the many investment options that are available.
What is your personal experience with direct share trading and/or managed funds? Which do you prefer?