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ETF’s vs Managed Funds vs Shares

ETF’s? Managed Funds? Direct Shares? Hybrid Funds? Corporate bonds? What does it all mean? There are a number of investments available to everyday Australians, however trying to figure out what is right for you and your investment goals becomes a challenge if you don’t know all your options. In this article we focus on alternative investments to your traditional options such as cash and Property.

You may not know it, although investments such as Exchange Traded Funds(ETF), Managed Funds and Direct Shares are already accessible in your superannuation funds  depending on where your funds are held. Investing in these assets outside super could really help your long term investment plans and allow you to grow your asset base quicker than parking your funds in cash over the long term.

When you invest in shares, each share you own represents a portion of ownership of a company. That means the more shares you own, the larger the direct ownership of the business you have.

When investing in a managed fund, however, your money is pooled along with other investors and used to invest in either a single asset fund or across a range of asset classes(diversified fund) all within the one fund and managed by an Investment manager such as Platinum, Colonial, Bentham etc.

ETF stands for exchange traded fund, and just like a stock, it is traded on  stock exchanges such as the ASX or NASDAQ. But unlike a stock, which focuses on one company, an ETF tracks an index, a commodity, bonds, or a basket of securities.

When investing in a ETF or Managed Fund, you are usually going into a fund that is looked after by a Professional Investment Manager who is ultimately responsible for all investment decisions. This might be the best option for you if you have a smaller amount to invest and are not confident when making investment decisions.

When it comes to deciding about whether to invest in shares or managed funds there are a number of different considerations to weigh up. The following are some of the key factors to keep in mind when deciding which option is right for you.

Costs

When buying or selling shares there are brokerage costs that’ll need to be paid which may be a flat fee for a small amount usually around $10-$20 for trades under $20,000 and usually a percentage for everything above that and this will change depending on the platform.

Fees for managed funds and ETF’s vary depending on the fund, but there are generally both ongoing management fees and administration charges that will need to be paid. It’s important to read the Product Disclosure Statement for details on fees and charges before deciding to invest in a particular fund.

Investors can use a traditional managed fund or an exchange-traded fund (ETF) to establish a low-cost, well-diversified portfolio of stocks, bonds and other assets. ETF’s do tend to be cheaper as they are indexed funds and usually try to match a index which doesn’t involve alot of active management.

Buying and Selling

When you own shares or units in an exchange traded fund, finding out the latest share or unit price is as easy as signing into your online trading platform. You can typically buy and sell them within market hours. Managed funds however usually have their value recalculated on each business day and rather than finding a buyer through the share market, you either transfer your units off-market or withdraw your investment. This can potentially take days or weeks to process depending on the type of fund you are invested in.

Investment Styles and Diversification

In order to have a diversified share portfolio, you’d need to invest in a range of different industries, both within Australia and internationally and this is likely to require a significant amount of capital to achieve this. With a managed fund or ETF, however, it’s possible to get exposure across and within a wide range of asset classes all in the one fund as there are thousands of funds available to invest in with different sectors, industries and investment styles to choose from.

Your Goals and Objectives

As with all investment decisions you should think about your time frame for investing, when do you potentially need those funds? What type of tax benefits are you looking for? What level of control do you want when making those investment decisions? The above has been prepared without taking account of your objectives, financial situation or needs. Because of this, you should consider its appropriateness, having regard to your objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

Follow our Youtube channel as we put out videos with further details around this and other topics at:

https://www.youtube.com/channel/UC6cEwN2Gu8AwSXAD9bvDy1g/featured?view_as=subscriber

If in doubt… Give us a call and we’ll help you work through your options in our Oran Park office located in the Macarthur region or we are able to service the wider Sydney region including Liverpool, Parramatta, Penrith and Sydney CBD.

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Ronald Pratap

Principal Financial Planner at RP Wealth Management | Financial Planning l SMSF I Insurance l Property Advisory. Our purpose is to provide our clients with sound advice and direction to assist with their financial affairs and help them make the best choices in achieving what is important to them.

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