Separately Managed Accounts

The recent volatility in the share market means that there will be opportunities to pick up quality investments at bargain basement prices. However, depending on your specific circumstances, some ways of investing in shares are better than others.

The main ways of investing in shares are:

• Direct purchase
• Managed funds
• Separately Managed Accounts

Direct Purchase

To directly purchase shares, you need to set up an account with a share broker, have access to good research, and have the ability to move quickly when opportunities present themselves. The most difficult of these requirements is access to good advice and research, and you should be prepared to pay a higher level of brokerage per transaction to access this.

You own the shares in your own right and all income from the shares comes directly to you. You can manage your tax position by buying and selling shares as you and your adviser consider appropriate.

Managed Funds

When you buy units in a managed fund, you can access the investment expertise of the fund manager. The fund manager will have set investment goals and will have determined the level of risk that is acceptable for the fund, and will buy and sell shares to achieve that investment profile.

There is usually an entry fee for a managed fund as well as a minimum investment amount. The fund manager will charge fees for their expertise and these fees reduce the income that comes to you. The manager purchases and sells underlying investments when he or she considers it appropriate. As a result, you have less ability to manage your own tax situation, especially when capital gains on the underlying investments are concerned.

Separately Managed Accounts

Separately Managed Accounts (or SMAs) combine the benefits of direct share ownership with those of managed funds. An SMA is a customised share portfolio managed by the SMA provider in accordance with one or more specific investment models. These vary in focus in a similar way to a managed fund. However, you have control over when and how much you invest, and because you own the underlying shares, you can manage your own tax situation.

When SMAs were first offered to investors in the early 1990s, you needed a significant amount of capital to set one up. These days, with improvements in computer technology, you can invest in an SMA with as little as $5000. Brokerage is kept low and you can use dollar cost averaging (a method of investing small amounts regularly into the market, thereby reducing the average cost price of your shares).

In our December 2010 newsletter, we introduced you to the ‘Blackrock BlueChip20 Long Term Equity – Series 3’, which mirrors the ASX 20. This is just one of a number of SMAs available.

A number of audio files about investments are available on our Bongiorno website: www.bongiorno.com.au.
You can download the MP3 files to listen to at your leisure.

Speak to your Bongiorno adviser to discuss how shares fit into your investment goals and how to access the buying opportunities that will present themselves over the coming months.

As this general advice has been prepared without taking account of your objectives, financial situation or needs, you should consider the appropriateness of this advice before acting on it. If this general advice relates to acquiring a financial product, you should obtain a Product Disclosure Statement before deciding to acquire the product.