In 2020, I Added Unit Trusts To My Investments, Here’s Why

By March 16, 2021 Articles

In 2020, I Added Unit Trusts To My Investments, Here’s Why

By definition, a unit trust is a collective investment fund that is priced, bought, and sold in units that represent a mixture of the securities underlying the fund. In other words, your money is pooled with money from other investors and invested in a portfolio of assets according to the fund’s stated investment objective and investment approach.

It offers a cost-effective manner to access a diversified portfolio of investments, as opposed to DIY investing, where you would be buying individual shares and bonds to build your own portfolio. Diversification in a unit trust can happen across various countries, industries, asset classes, etc.

2020 saw the world ravaged by the COVID-19 pandemic. Its spread has left national economies and businesses counting the costs, as governments struggle with new lockdown measures to tackle the spread of the virus. In response, central banks in many countries have slashed interest rates. Bank interest rates have, in turn, been falling steadily.

Naturally, this left me pondering on alternatives for me to park my spare cash holdings to generate higher returns. This is where I started to do some personal research on investments, in turn figuring that I would begin by passively investing first. Cue unit trusts, where it has allowed me to capitalize on fund managers’ insights and knowledge.

A key feature about unit trusts is that they enable me to own a basket of assets in my preferred sector, region or risk appetite. Do you believe in China’s long runway for growth but cannot figure if you should buy Meituan, Alibaba, Tencent, Baidu or JD? Find an Amazon stock too expensive to own? Think that healthcare stocks are still worth a punt but do not know where to start? Unit trusts have all the answers.

Having said all of that, I have always advocated people to have a balance of active and passive investments. Actively investing alone would not be viable, and below are my few reasons why.

It comes with great responsibility as there is nobody to blame. From the weight of your financial planning decisions to the execution of your investment plans, all the responsibility lies on your shoulders.

When we self-manage our investments, it is easy to let our impulses and fears take control.

We may get excited with hot news from Seeking Alpha and choose to punt a hot stock. We may speculate beyond our own financial and emotional comfort level and make decisions that we will regret. We may also make mistakes that affect our confidence and discipline in investing consistently in the future.

Active investments require us to constantly monitor our portfolio. This can be a time consuming, expensive process. For most of us, time is a premium, and this is why I added unit trusts to my investments in 2020, where crucially, they have provided me with the time to pursue my other commitments in life while believing firmly in the acumen of fund managers to grow my money, for me.

– Ben Wong (@psychedsim), Financial Services Consultant