Should I Invest in Shares or Managed Funds?
Difference Between Shares and Managed Funds
Investing in shares essentially means that each individual share you own (purchased) represents a portion of ownership of that company you invested in.
When investing in a managed fund, your money is pooled along with other investors to invest in a ‘fund’ that invests on your behalf across a range of asset classes within the individual fund. This allows for more diversification. A professional ‘fund manager’ is responsible for investment decisions and each fund has different objectives they set out to achieve for their investors.
Fund managers decide what investments to buy and sell based on their projected benchmark performance expectations. This might be a good option for those investors that are not confident in making their own investment decisions or lack the time or resources to study the market.
How to Decide?
A truly diversified portfolio requires exposure to a range of assets that have exposure to different industries domestically and internationally. Managed funds allow easy access to such diversification with less capital (funds invested) required. This is more difficult to attain with direct shares.
You may be more comfortable having a professional make investment decision on your behalf if you wanted peace of mind by not having to worry about making these decisions, in which case a managed fund is likely to be the way to go. If having more control over where your money is invested is a deciding factor, then investing in shares would likely be a better option.
It would also be wise to consider, depending on the size of the portfolio, to include a balance between shares and managed funds to take advantage of franking credits and other tax benefits. As such it would be worthwhile having a discussion with your adviser to determine what the best solution is for you based on your individual circumstances, goals, and objectives.