Unit trust - over-diversifying

[Hanks]

Hi,

When does having too many unit trusts become a bad investment ..

example : Lets say you have R5000 to investment monthly ...

Would it be better to have 5 unit trusts and contribute R1000 each per month ?
or

10 unit trusts and contribute R500 each per month ?

 

[SauRoNZA]

Diversification isn't about how many different investments you have as much as it is about the underlying markets you are investing in.

You could have 10 unit trusts but if they are all focused on property shares then you don't have any diversification at all.

But to answer this particular question I would rather do 5 at R1000 each over 10 for R500 which is simply too much to manage.

 

[Hanks]

Diversification isn't about how many different investments you have as much as it is about the underlying markets you are investing in.

You could have 10 unit trusts but if they are all focused on property shares then you don't have any diversification at all.

But to answer this particular question I would rather do 5 at R1000 each over 10 for R500 which is simply too much to manage.

Hi,

I used diversifying in the wrong context as you correctly stated.I have some unit trusts with investec however i would also like to take out another one using Allan Gray.All of them would be high equity so no difference in the underlying markets.My only reason is because Allan Gray has a good reputation.I'am thinking since iam putting away R1000 into the investec unit trust , by taking out an Allan Gray i can split it R500 AG and R500 investec.

 

[SauRoNZA]

I don't think there's much to win reputation wise between the two really.

I would be more concerned with profit being lost to costs due to investing such small amounts in more than one place.

Which is why I would look at ETF'S as an additional anyway just for the low costs.

 

[Hanks]

I don't think there's much to win reputation wise between the two really.

I would be more concerned with profit being lost to costs due to investing such small amounts in more than one place.

Which is why I would look at ETF'S as an additional anyway just for the low costs.

Thanks , makes sense.Will have a look at satrix

 

[MacAfrican]

Go ETF. If you work out what the negative effect is of paying fund managers those %'s every year for 30 years it is terrifying. The compound growth on costs pays for their bonuses.

And taken at 30 years they don't beat the market anyways - only 2 beat S&P in US over 40 years

 

[Hanks]

Go ETF. If you work out what the negative effect is of paying fund managers those %'s every year for 30 years it is terrifying. The compound growth on costs pays for their bonuses.

And taken at 30 years they don't beat the market anyways - only 2 beat S&P in US over 40 years

i guess there are pros and cons for both ETFs and Unti trusts.From my research is seems there is no clear winner.I think by having both ETFs and unit trusts you spread your portfolio

 

[Hendrix]

By splitting the investments among different asset managers is not a bad thing, you lessen the risk of one asset manager making a bad call.
Costs don't increase or decrease, since they charge a percentage of AUM (assets under management)!
Let's say they charge 2% a year, they will charge this if you invest R500pm or R5000pm, so it doesn't matter.

 

[Hendrix]

By splitting the investments among different asset managers is not a bad thing, you lessen the risk of one asset manager making a bad call.
Costs don't increase or decrease, since they charge a percentage of AUM (assets under management)!
Let's say they charge 2% a year, they will charge this if you invest R500pm or R5000pm, so it doesn't matter.