Choosing between unit trusts and individual stocks shapes how you build wealth. This guide explains how each works, where they shine, and what to consider before you commit.
We break down diversification, costs, control and performance so you can match the approach to your goals and the time you want to spend managing money.
Diversification, Risk and Time Commitment
Unit trusts pool investors’ money to buy a diversified basket of assets, often across sectors and regions. That built‑in spread reduces dependence on any one company and applies a disciplined process. Which delivers more value: unit trusts or picking single shares? The answer often begins with diversification—and the ease of getting it from day one, along with automated rebalancing and admin.
Buying individual stocks puts you in charge of selection and sizing. You can craft your own mix, but achieving real diversification usually means holding dozens of names across industries and styles, then rebalancing as results arrive. That’s rewarding for investors who enjoy research, but it takes time and consistency.
Risk is managed differently, too. Unit trusts dilute company‑specific risk and keep to a repeatable method, which suits hands‑off investors. Stock pickers accept more concentration in exchange for the possibility of outsized gains in chosen ideas; the right path depends on how active you want to be.
Costs, Access and Tax Efficiency
Costs are structured differently. Unit trusts charge an ongoing fee (often shown as a total expense ratio) for management, research and administration, sometimes plus a platform fee. In return, trading, record‑keeping and dividend reinvestment are handled for you. How do pooled funds stack up against owning individual equities? Start by weighing these ongoing fees against the frictional costs of building and maintaining your own portfolio.
With individual stocks, you pay brokerage and a spread when you buy or sell. If you trade infrequently and hold for years, those one‑off costs can be modest. But diversifying one position at a time means multiple tickets, and periodic rebalancing adds more. Research tools and occasional mis‑sized trades can nudge the true cost higher than headline brokerage alone.
Administration and tax reporting can sway convenience. Unit trusts usually provide consolidated statements and handle corporate actions and distributions automatically, which simplifies monthly contributions and withdrawals. Direct stock portfolios give granular control over the timing of sales and cash flows, but they demand more record‑keeping across each security.
Performance, Control and When Each Option Wins
Performance varies by market cycle and approach. Index‑tracking unit trusts aim to deliver the market return minus a small fee, while active funds try to beat it with research and security selection. When might a unit trust outperform a hand-built stock portfolio? Often when disciplined diversification, systematic rebalancing and avoiding behavioural pitfalls matter more than concentrated bets.
Control is the standout edge of direct ownership. Choosing individual shares lets you tilt toward themes you believe in, reflect your values, optimise tax timing and decide exactly when to buy or sell. Unit trusts trade some of that control for professional oversight and scale, applying a defined mandate consistently.
Who is each approach best for? If you want simplicity, automated diversification and easy monthly contributions, unit trusts make a strong core. If you enjoy research and want to express specific views, a carefully chosen basket of shares can complement that core. A blended “core‑satellite” setup often strikes the best balance.
In Conclusion
There isn’t a universal winner. Unit trusts excel at diversification, convenience and staying the course; individual stocks excel at precision and personalisation. The better route depends on your goals, time commitment and preferences—and for many investors, combining both creates a robust, long‑term plan.
Ready to choose the mix that suits you? Speak to our experts on financial solutions. At AVB Solutions, our team can help you build a tailored strategy—whether that means a unit‑trust core, a focused stock sleeve, or a holistic plan that brings it all together.