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Sunday Times “Money” section journalists’ deceit and don’t waste your cash making unit trust managers rich

I’ve blogged on this before http://www.snouts-in-the-trough.com/archives/5748 There were some amazing “coincidences” in the Sunday Times Money section yesterday. In an article written by one of their key journalists, Ali Hussain, a financial adviser recommended savers put money in a unit trust called the Old Mutual UK Select Mid Cap Fund – a UK-focused fund that invests in mid-sized companies. Then in another piece featuring a picture of a happy family of supposedly “ordinary savers” we were told that “they have recently invested in the Old Mutual UK Mid Cap fund”. And, another coincidence I suppose, on the next page, there was a nice expensive ad placed by, yup you guessed it, Old Mutual Global Investors.

Unfortunately, I haven’t kept my old copies of the Sunday Times Money section. But I have a feeling that Mr Hussain frequently seems to include in his articles mentions of unit trusts run by the companies that have put the biggest ads in the Sunday Times Money section that week. It’s quite extraordinary how often this coincidence occurs.

This is the kind of picture unit trust managers like to portray to ordinary savers of their money growing:

But how realistic is this picture? Here are just a few good reasons to avoid unit trusts like the plague:

1. You lose about 5% of your money when you buy units (unless you buy through a fund supermarket)

2. Although the unit trust will often claim its management charge is only about 1.25% a year, in fact you’ll usually end up paying around 2.5% a year when you include other charges, commissions and dealing costs

3. You lose 5% of your money when you sell your units as the selling price is always about 5% lower than the buying price

4. If you hold your units for 5 years, you’ll pay about 22.5% in charges. If you hold for 10 years you’ll pay about 35%. As most unit trusts can only manage to achieve growth of 2% to 3% a year above inflation (if you’re lucky), although the fund value will look like it has gone up significantly, you’ll have lost money because of charges and inflation

5. Over the 5 to 10 years that we are advised to keep our money in unit trusts, about 80% of them fail to beat the overall performance of the market they are invested in

6. We probably now have around £600bn in unit trusts and are paying fees of about £18bn a year – an incredible £72m every working day – making our unit trust managers and salespeople very rich indeed

This is the kind of house probably owned by your unit trust manager:

(Given that only 130 people have bought a copy of my latest book GREED UNLIMITED, this is not the kind of house I’m ever likely to live in)

So, what’s the solution for savers? With bank interest rates so low, we’re almost forced to put money into shares if we want to beat inflation. Fine. So, look at the sales bumf for a few unit trusts – it’s all available online. Look at the top 10 shares they hold (most of them usually hold the same shares). Then buy those shares directly yourself reinvesting your dividends in shares in the same companies. Nine times out of ten, you’ll beat most unit trusts as you’re not paying 22.5% to 35% of your money in fees to keep the unit trust managers in a multimillionaire lifestyle that most savers can hardly even dream of.

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