Unit prices for managed funds

[Jimmy_the_Gent]

This is probably pretty basic but I'm not entirely sure I understand the concept of unit prices.

For example, say that I invest $1000 in a fund where the unit prices for entry are $1/unit. I'd get 1000 units, simply enough.

But then when I want out, if the exit price was 0.95c/unit I'd be selling my units at less than their purchase price which would mean I'd be down 5% on anything I make?

Would that be the case in this senario?

 

[Merv]

This is probably pretty basic but I'm not entirely sure I understand the concept of unit prices.

For example, say that I invest $1000 in a fund where the unit prices for entry are $1/unit. I'd get 1000 units, simply enough.

But then when I want out, if the exit price was 0.95c/unit I'd be selling my units at less than their purchase price which would mean I'd be down 5% on anything I make?

Would that be the case in this senario?

Yes that is the case.

Managed funds have an entry price and exit price.

 

[Jimmy_the_Gent]

Yes that is the case.

Managed funds have an entry price and exit price.

Ok but that means that picking the right fund is almost like picking the right stock, as prices flucuate for both.

The main reason I wanted, and liked, managed funds was because I didn't want to be picking things, i.e. I wanted to pay someone to do that for me.

 

[Merv]

Ok but that means that picking the right fund is almost like picking the right stock, as prices flucuate for both.

The main reason I wanted, and liked, managed funds was because I didn't want to be picking things, i.e. I wanted to pay someone to do that for me.

You can't just pick any fund, you still need to pick the correct one for you.

For example would you like to have your money in a managed fund that invests in American property?

As long as you are not looking at pulling your money out quickly, the entry and exit price shouldn't make much difference.

Bit investing in the correct funds will make a massive difference.

 

[Brown Bottle]

Ok but that means that picking the right fund is almost like picking the right stock, as prices flucuate for both.

The main reason I wanted, and liked, managed funds was because I didn't want to be picking things, i.e. I wanted to pay someone to do that for me.

Remember also that managed funds give you the advantage of large-scale diversification in specific sectors, unlike anything you would be able to achieve yourself, and in theory the fund managers trade regularly and are specialists in their areas.

 

[Jimmy_the_Gent]

You can't just pick any fund, you still need to pick the correct one for you.

For example would you like to have your money in a managed fund that invests in American property?

I'm aware of having to find a fund which suits me and obviously I'd be looking to steer clear of US property in the short term. Sorry if my previous post made it seem as though I was going to stab blindly for a managed fund, that's not the case.

I'm actually thinking about a 100% AUS share fund but I'm not looking to buy into one until late this year at the earliest (depending on the Macro-economic situation). I'm hopeful that by the time I'm ready to invest, US shares, global shares and property will be more appealing and I'll have confidence to buy into a more diverse fund which I think is ultimately better. Anyway, that's not really on topic.

As long as you are not looking at pulling your money out quickly, the entry and exit price shouldn't make much difference.

This is the quote which caught my eye.

I'm certainly not looking to pull my money out quickly, if all goes to plan it should stay invested for 4 or 5 years, but I'm slightly worried about making a certain amount of money and then losing a portion of it when it's withdrawn because my funds unit price has decreased.

For example, wouldn't a funds unit price decrease if the fund grew 8% over a period of time in which the market grew by more than 8%?

I'm fairly sure it would, which means that finding a good fund will require as much work as finding a good stock and that's the skill I'm not sure I have.

Perhaps the only solution for me is a financial advisor.

 

[Jimmy_the_Gent]

Remember also that managed funds give you the advantage of large-scale diversification in specific sectors, unlike anything you would be able to achieve yourself, and in theory the fund managers trade regularly and are specialists in their areas.

Indeed that's one of the appeals of managed funds. They should also allow me access to investments beyond by means, e.g. a very small share in exclusive CBD property, or something similar, when normally I wouldn't have enough capital to buy any stake in such things.

Things like that make MFs very attractive to me.

 

[Merv]

I'm aware of having to find a fund which suits me and obviously I'd be looking to steer clear of US property in the short term. Sorry if my previous post made it seem as though I was going to stab blindly for a managed fund, that's not the case.

I'm actually thinking about a 100% AUS share fund but I'm not looking to buy into one until late this year at the earliest (depending on the Macro-economic situation). I'm hopeful that by the time I'm ready to invest, US shares, global shares and property will be more appealing and I'll have confidence to buy into a more diverse fund which I think is ultimately better. Anyway, that's not really on topic.



This is the quote which caught my eye.

I'm certainly not looking to pull my money out quickly, if all goes to plan it should stay invested for 4 or 5 years, but I'm slightly worried about making a certain amount of money and then losing a portion of it when it's withdrawn because my funds unit price has decreased.

For example, wouldn't a funds unit price decrease if the fund grew 8% over a period of time in which the market grew by more than 8%?

I'm fairly sure it would, which means that finding a good fund will require as much work as finding a good stock and that's the skill I'm not sure I have.

Perhaps the only solution for me is a financial advisor.

I wouldn't advise going to a financial advisor.
Due to the rules of the site i am not allowed to actually post what i think of them or their competency or motives.
You have to realise ALL you are losing is small deduction to your unit price

Maybe this chart will help you it is a fund i closed in December but had been very good to me.

http://www.colonialfirststate.com.a...MainGroup=IF&GroupID=70&ProductID=46&Public=1

You only lose the amount on your exit, it isnt an exponential loss after every calculation based on your entry price.

 

[Jimmy_the_Gent]

I wouldn't advise going to a financial advisor.
Due to the rules of the site i am not allowed to actually post what i think of them or their competency or motives.
You have to realise ALL you are losing is small deduction to your unit price

Maybe this chart will help you it is a fund i closed in December but had been very good to me.

http://www.colonialfirststate.com.a...MainGroup=IF&GroupID=70&ProductID=46&Public=1

You only lose the amount on your exit, it isnt an exponential loss after every calculation based on your entry price.

Thanks very much. I think I'm coming to terms with unit prices a little more now and I'm starting to think that they aren't going to completely ruin an investment in funds.

An exit price probably can't take the gloss off 5 years of 10+% p.a. growth; I gather that's what you're trying to tell me.

 

[Astro_]

Fund managers usually provide a spread between the buying and selling price of the investments they operate (buy-sell spreads). This represents a cost for the buying and selling of investments and will only occur when units in the investment are bought or sold.

 

[daddy_4_eyes]

An exit price probably can't take the gloss off 5 years of 10+% p.a. growth; I gather that's what you're trying to tell me.

The difference in buy/sell price is very small, in the 0.25-0.75% range (with some exceptions), so don't stress over it.

With choosing what managed fund to go with, try researching into their investment strategy. Even though they all invest in Australian shares, you'll have some with a higher weighting in blue chips or specific sectors for example, some invest in smaller companies, some delibrately try to predict what the global economy will do and exploit that, etc.

Might be a good idea to put your funds into several investment options under the one managed fund to further diversify your portfolio. Don't be afraid to put some money into international shares too, there's value in them.

 

[Scratcher Gillespie]

I wouldn't advise going to a financial advisor.
Due to the rules of the site i am not allowed to actually post what i think of them or their competency or motives.
You have to realise ALL you are losing is small deduction to your unit price

Maybe this chart will help you it is a fund i closed in December but had been very good to me.

http://www.colonialfirststate.com.a...MainGroup=IF&GroupID=70&ProductID=46&Public=1

You only lose the amount on your exit, it isnt an exponential loss after every calculation based on your entry price.

Decent enough point Merv, but who else is he supposed to turn to for financial advice. Do you think the real estate industry is more ethical with less ulterior motives than the financial planning industry. Or do you think one of his mates with a hot new mining stock tip is a better option. Bigfooty posters? (don't make me laugh)

The truth is good, conflict of interest free advice is easy to find, you just need to know where to look. A fee for service based advisor (who often recommend index/quasi index funds) is the best choice.

 

[Papa G]

Decent enough point Merv, but who else is he supposed to turn to for financial advice. Do you think the real estate industry is more ethical with less ulterior motives than the financial planning industry. Or do you think one of his mates with a hot new mining stock tip is a better option. Bigfooty posters? (don't make me laugh)

The truth is good, conflict of interest free advice is easy to find, you just need to know where to look. A fee for service based advisor (who often recommend index/quasi index funds) is the best choice.

Don't be silly Scratcher - It's the same reason I don't go to a dentist when I have a sore tooth - I'm sure they have an alterior motive and will pull my tooth out just to charge me the big bucks. I much prefer to get my dental advice from a internet site.

 

[Merv]

Decent enough point Merv, but who else is he supposed to turn to for financial advice. Do you think the real estate industry is more ethical with less ulterior motives than the financial planning industry. Or do you think one of his mates with a hot new mining stock tip is a better option. Bigfooty posters? (don't make me laugh)

The truth is good, conflict of interest free advice is easy to find, you just need to know where to look. A fee for service based advisor (who often recommend index/quasi index funds) is the best choice.

He was talking about going to a financial adviser for advice on picking a managed fund.
It is very basic and quite easy and he just really needed to get his around the buy/sell spread.
Everything i advised him on can be checked many times over on the net.

I work in the industry and as i said, i can't give my true feeling on financial advisers on this site, as it would break BF rules.

You may also have noticed in another thread and many others in the money forum i advised posters to not listen to tips on BF.

Papa G, stick with your financial advisers mate, they will be great for you.

 

[Scratcher Gillespie]

He was talking about going to a financial adviser for advice on picking a managed fund.

I work in the industry and as i said, i can't give my true feeling on financial advisers on this site, as it would break BF rules.

You may also have noticed in another thread and many others in the money forum i advised posters to not listen to tips on BF.

Papa G, stick with your financial advisers mate, they will be great for you.

You don't think a fee-for service advisor will do a better job of picking a managed fund than someone who knows absolutely nothing about the market?

 

[Jimmy_the_Gent]

The difference in buy/sell price is very small, in the 0.25-0.75% range (with some exceptions), so don't stress over it.

Yeah, I've come to the conclusion that it's not as bad as I first thought. Originally I was worried that buy and sell prices would be wiping out large portions of growth and therefore I didn't understand what appeal managed funds would have left. I've moved on a little since then, however.

With choosing what managed fund to go with, try researching into their investment strategy.

Don't worry about this, I'm all over it.

It's actually very interesting to read about what a fund does and why the managers believe a particular strategy will be profitable.

Also it's written in a fairly understandable diction which allows less experienced investors, like me, to understand it.

Might be a good idea to put your funds into several investment options under the one managed fund to further diversify your portfolio. Don't be afraid to put some money into international shares too, there's value in them.

There's a certain amount of money I want to have before I go ahead and buy into a managed fund and I'm hoping that by the time I save this amount the current fears of recessions and inflations and so forth will be clearing up a little.

When that does happen I should have more faith in foreign shares and overseas investments but at the moment I'm not too keen to even invest in the ASX.

...I guess I'm what you'd call a conservative investor.