Do you know their differences?
1. Saving vs Investing
2. Investing vs Trading
3. Index Funds vs ETFs
4. Mutual Funds vs Unit Trusts vs Unit Investment Trusts
Lets explain these below.
[THREAD]
#BackToBasics
1. Saving vs Investing
2. Investing vs Trading
3. Index Funds vs ETFs
4. Mutual Funds vs Unit Trusts vs Unit Investment Trusts
Lets explain these below.
[THREAD]
#BackToBasics
1. Saving vs Investing
Both involve setting aside money for future needs.
Investing is buying an asset to benefit from its income generation or growth in value.
Examples of assets are bonds, stocks, cash, property etc
However, savings are limited to cash investment only.
Both involve setting aside money for future needs.
Investing is buying an asset to benefit from its income generation or growth in value.
Examples of assets are bonds, stocks, cash, property etc
However, savings are limited to cash investment only.
Saving vs Investing continuation:
The other differences are in terms of duration, risk and return.
Duration:
Investing - long term
Saving - short term
Risk:
Investing - high risk
Saving - low risk
Return:
Investing - high expected returns
Saving - low but guaranteed returns
The other differences are in terms of duration, risk and return.
Duration:
Investing - long term
Saving - short term
Risk:
Investing - high risk
Saving - low risk
Return:
Investing - high expected returns
Saving - low but guaranteed returns
2. Trading vs Investing
These 2 are very different yet most pple confuse them.
Trading is buying an asset to benefit from short term price changes.
Investing is buying and holding an asset to benefit from its future potential (that is growth in value and income generation).
These 2 are very different yet most pple confuse them.
Trading is buying an asset to benefit from short term price changes.
Investing is buying and holding an asset to benefit from its future potential (that is growth in value and income generation).
Trading vs Investing continuation:
A trader can make money without the true value of an asset changing just as someone can buy bread at R5 & sell it for R10.
An investor ignores the short term price fluctuations to benefit from long term gains (its about patience & discipline).
A trader can make money without the true value of an asset changing just as someone can buy bread at R5 & sell it for R10.
An investor ignores the short term price fluctuations to benefit from long term gains (its about patience & discipline).
3. Index Funds vs ETFs
They are very similar.
They both track the performance of an index like S&P500.
Meaning a share in both an ETF or Index fund invests in all the assets that make up that index.
They are good to a passive investor coz of their low cost & diversification.
They are very similar.
They both track the performance of an index like S&P500.
Meaning a share in both an ETF or Index fund invests in all the assets that make up that index.
They are good to a passive investor coz of their low cost & diversification.
Index Funds vs ETFs continuation:
The differences:
- ETFs are traded just like stocks on a stock exchange while Index funds are priced once a day.
- The minimum investment on Index Funds is higher than on ETFs
The differences:
- ETFs are traded just like stocks on a stock exchange while Index funds are priced once a day.
- The minimum investment on Index Funds is higher than on ETFs
4. Mutual Funds vs Unit Trusts (UT) vs Unit Investment Trusts (UIT)
In SA, UK and Zim, unit trusts is just another name of mutual funds (USA).
However, minor differences still exist.
Unit Trusts are formed under a trust deed and the beneficiary is the investor.
In SA, UK and Zim, unit trusts is just another name of mutual funds (USA).
However, minor differences still exist.
Unit Trusts are formed under a trust deed and the beneficiary is the investor.
Mutual Fund vs UT vs UIT continuation:
They are all collective investments in the sense that investors pool their money together into a fund for investing in many assets like stocks and bonds.
UT and Mutual funds are "actively managed" while UITs are "passively managed".
They are all collective investments in the sense that investors pool their money together into a fund for investing in many assets like stocks and bonds.
UT and Mutual funds are "actively managed" while UITs are "passively managed".
Mutual Funds vs UT vs UIT cont.
UTs & UITs aren't the same.
UITs are old fashioned. Under UITs, the money is raised & the fund is closed & the investment remains fixed until a set maturity date.
With Mutual fund & UTs, investors can buy more/sell frequently with no maturity.
UTs & UITs aren't the same.
UITs are old fashioned. Under UITs, the money is raised & the fund is closed & the investment remains fixed until a set maturity date.
With Mutual fund & UTs, investors can buy more/sell frequently with no maturity.
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