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Shares or Managed Fund ?

Discussion in 'Shares' started by Bez, 28th Dec, 2007.

  1. Bez

    Bez Member

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    Hey guys, im thinking about borrowing $20k and investing it into shares, split between 3 blue chip companies.. (not sure which ones yet)
    But im just wondering would it be better to put $20k into a managed fund ?

    Im not sure which way to go, is it pretty much the same either way ?

    Thanks..
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    A managed fund or other managed investment will get you a broader exposure and simpler management of your investment, but at the cost of higher ongoing fees.

    I would think it will depend on your strategy and goals to a degree as to which is the better approach. Personally I think the diversification of a managed fund is worth the effort if you hold no other investments - you'll get exposure to 20 or more shares rather than just the three if you bought directly.

    Look to minimise your costs: you shouldn't pay entry fees - there are easy ways to avoid them; and don't pay too much for ongoing management fees - I think 1.5% is about the most you should pay for an actively managed retail fund.

    The argument of actively managed funds versus passively managed funds is another aspect to consider - if you are a "buy-and-hold" kind of person and wouldn't really consider trading in and out of your shares as sentiment changes, then perhaps consider index funds or index-tracking ETFs for their very low cost exposure to whichever index they track.

    The alternative is to go for an active fund - something like the CFS Geared Share fund holds predominantly blue-chip shares and uses internal gearing to magnifiy returns over time (over the short term this can also magnify losses - but over much longer periods, you won't find many Australian funds which outperform a geared fund like this). These funds are more expensive in the way of management fees though, and have an overall higher risk profile due to the gearing.

    Just some suggestions on things to look at.
     
  3. samaka

    samaka Well-Known Member

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    Sim - Does CFS Geared Share do much trading? Or is the fund's strategy itself pretty much buy and hold?
     
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Good question - we don't get all that much information on these funds beyond what is in their quarterly reports (compared to some funds like Navra!).

    If you read some of their comments, you generally get the feeling that they do trade a bit:

     
  5. JudgeDreadz

    JudgeDreadz Well-Known Member

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    should the current market climate affect one's decision to go into individuals shares vs units in a managed fund?
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I don't think the market climate really dictates which is the best approach - the same rules apply in any market.

    If you are confident in your ability to pick individual shares and monitor their performance, then that might be a good alternative for you.

    If you prefer some diversification across a wider range of shares chosen by professional fund managers (or chosen for you based on some index criteria), then a managed fund may be more appropriate.

    If you wouldn't know when to sell out of a share (even for long-term buy-and-hold investors), then I think a LIC, ETF or managed fund is probably a better choice.
     
  7. nitro-nige

    nitro-nige Well-Known Member

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    This is only an opinion but I think it depends on how much time and/or desire you have to 'get to know' the shares and sharemarket.

    If you're time poor or not overly interested managed funds or EFT's might be a better option than direct share purchase.