Never put your money in a unit trust

With savings interest rates at almost zero and likely to stay there for several years, many savers are being tempted to put their money into unit trusts in the hope of better returns. But when you buy into a unit trust, you can quickly lose a lot of money. First there’s the initial cost – about 5% (can be avoided if you use a funds supermarket). Then there are management and dealing charges of about 3% a year. Then when you take your money out, you lose another 5% due to the difference in the price you bought the units and the price you have to sell them. So, over 5 years, you can lose 20% to 25% of your money. Of course, the trust managers will claim they can grow your savings. But over the last 10 years stock markets have not gone up at all and over the next 10 years growth is likely to be about the long-term average of 1% to 2% a year.

So, this is what you should do. 1. Find some unit trusts you like. 2. Look on their websites and see which are the main shares they hold. 3. Buy those shares directly yourself. 4. Hold on to those shares for a few years, reinvesting your dividends in more shares of those companies. In this way, you get the benefit of the unit trust managers’ experience without having to pay them a penny. At the end of 5 years you’ll have 20% to 25% more than if you’d used a unit trust and at the end of 10 years you’ll have 35% to 40% more. Simples!