A road trip to financial freedom
| Financial freedom | Retirement | ETFs |
|---|---|---|
| TFSA | Offshore | Property |
| Markets | Investment terms | Fees |
Topic: Investment terms
Mr Money Mustache, the Frugalwoods and almost every FIRE blogger I know choose index tracking funds (passive) for their investment portfolios. This ‘everybody is doing it’ argument is not the one that convinced me to start switching into passive, though. But when Warren Buffett started recommending index trackers, I found myself paying attention.
There are a few misconceptions around ETFs vs unit trusts going around. One is that an ETF is passive and a unit trust is always active. The other more worrying untruth is that ETFs are always cheaper than unit trusts. When looking at the overal cost on fund and platform or brokerage level, a unit trust often beats an ETF cost-wise. Which should you choose: ETF or unit trust?
It’s time to delve into some ‘index geography’. Once you can confidently point out where on the global equity index 'map' your ETF lies, knowing how to further diversify your global portfolio becomes a breeze.
The FIRE movement has become obsessed with choosing funds with the lowest fees. But are we forgetting the main driver of portfolio performance - asset allocation? 2020 has been an excellent example of how different asset allocation choices can lead to wildly different investment returns.
Want to know where active, passive, wrappers, unit trusts and other commonly used investment terms fit into your portfolio? This is for investors who want to dig deeper. Warning: this post contains explicit investment language and graphic depictions of what your money get ups to when you hand it over to the investments industry. Only view if you're not sensitive to a sustantial amount of detail.