ETFs, unit trusts do the job of picking Stocks

(Image courtesy of Straits Times 21 Feb 2015)

Finally got time to read my Saturday Times (I only buy Saturday Times because I don’t have time to read newspapers everyday, and because it is usually the one with interesting things to learn. Sunday Times you get some knowledge too but I rarely buy it. Cost savings :) ).

Stumbled upon this article about investing in ETFs and Unit Trusts instead of picking individual stocks, so I thought I’ll write something about it.

It’s the same reason why I generally prefer ETFs over buying individual stocks (I have a different policy for dividend stocks in Singapore) as the amount of stocks to screen and measure is mind blogging, not to mention when you expand into US equities.

Sure, those funds wouldn’t beat the next upcoming Google nor Apple shares, but what’s the chance you could actually pick one? I will agree that carefully filtering, screening stocks to find the good potentials for growth will outperform those ETFs (those funds usually yield about 70-80% of a good growth stock) but realise that you consistently have to filter and manage your portfolio for growth. It is a nice trade-off for me (filtering dividend stocks is already tiring).

Active vs Passive management is important. ETFs tend to be passively managed, Unit Trusts/Mutual Funds tend to be actively managed, though there are some of them that are passively managed. My issue with those actively managed funds is that the maintenance fees are rather costly and eat into your profits over time.

As a bonus, ETFs allows some control of trade executions like how you use TA to get the better price (notice I don’t use best, it is pretty hard to catch market bottoms, for investing for the long term it usually doesn’t matter so much).

Also remember that ETFs follow stocks clearance time of T+3 as compared to unit trusts where the money will take some time to come back into your hands.

SPDR STI ETF (if you want Singapore only ETFs) and Vanguard S&P500 ETF seems good options to me.

What do you folks think?