UT or share portfolio

Managing people & their emotions around money™

UT or share portfolio

There are many with strong opinions about the merits of a share portfolio versus a unit trust portfolio. Here’s another one (strong opinion) in favour of a unit trust portfolio.

One of the aims of investing surely has to be to accumulate wealth which will enable you to live “comfortably” at a later stage in life (usually referred to as retirement). In this regard, it is my opinion that a unit trust portfolio trumps a share portfolio, every time!

A retiree’s primary aim is usually security of income and this is where a share portfolio falls short; it is very difficult to draw a regular income from a share portfolio. Investors usually have to depend on dividends which are irregular, sometimes unreliable and the long-term dividend yield is less than 3% (±2.8%). An investor with a share portfolio of R10m would therefore expect to receive less than R300k pa from the dividend yield. Alternately they would need to sell shares (CGT) and this is also tricky as many investors are emotionally tied to their investments.

The same amount in a unit trust portfolio could reasonably generate a sustainable (and close to tax-free) income of ±R500k pa (5%). This would be done by selling units on a monthly basis to provide the income – essentially rand-cost-averaging on the way out. Sure, this is a capital gains tax event but in most cases, this would be very tax efficient (if not completely tax-free).  Most unit trust investors also have no idea of the underlying shares that they hold and the emotional attachment to “granny’s shares” is simply not there.


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