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Are ETFs a cheaper way to invest than unit trust funds?

by , 20 August 2013

Many of us use unit trust funds as a long-term investment. But have you thought about the fees you pay? Is there a lower cost alternative to consider? Read on to find out why you should think about exchange traded funds…

If you have a lot of your investments in unit trust funds, then that's a big mistake, Steve Sjuggerud and Brett Eversole explain in Daily Wealth Premium

You see, unit trust funds are expensive. Their structure is inefficient… so managers charge high "expense ratios." These are fees that you pay just to own the fund… and they can often be several percent, every year.

Luckily, there is a simple way to get out of these costs. Sell your unit trust funds and move your cash into highly efficient exchange traded funds (ETFs).

The benefits of ETFs

ETFs offer a perfect alternative to unit trust funds. They offer the same one-click diversification. But their costs are significantly lower. In addition, most ETFs are exempt from Securities Transfer Tax.

My friend Mebane Faber has personally launched several ETFs. He's a bit of an activist against unit trust funds. And he recently crunched the numbers to discover just how much savings ETFs offer. His results are astounding…

Based on fees alone, Meb found ETFs offer a 0.5% annual savings over unit trust funds. This saving can be as much as 2% a year.

2% a year might not seem like much, but it really adds up. If you average 10% a year for 20 years, a R100,000 investment would turn into R673,000. However, by paying a 2% annual fee, that number drops to R449,000.

Said another way, in 20 years, 33% of your gains evaporate thanks to fees.

It's time to take hold of your investments. Think about a move into low-cost ETFs.

Are ETFs a cheaper way to invest than unit trust funds?
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