What’s a good retirement saving option?

*This article is brought to you by Brenthurst Wealth .By Ruan Breed*.Have you been looking for ways to boost your retirement savings by making additional investments or need a fund because your company doesn't offer a pension plan? Saving for your retirement is obviously a key pillar of any sound financial plan, yet it's a topic we're often happier not thinking about.The hard facts are that even company-provided pension funds don't guarantee you a comfortable retirement. The pressures of running a household often push savings and investments to the back of your priorities, meaning that you might not be saving at the rate you should..That equation, alone, is a question that many South Africans grapple with. According to the Retirement Reality Report 2023, only 6% of the country's population is on track to retire comfortably. This is hardly comforting, but fortunately it's one you can be overcome with a little planning and a lot of discipline..Whether you have a company pension or not, two popular options you can look at for your retirement savings are unit trusts and exhange-traded funds (ETFs). Best of all, some of these funds comply with Regulation 28 of the Pensions Act, which means that you get a tax benefit on a portion of your annual contributions..There are around 1,600 unit trusts available to retail investors in South Africa – not all are Reg 28 compliant – and around 100 ETFs listed on the JSE. So, you certainly aren't short on choice..Which of these investment options is best for you is something that I suggest you discuss with a suitably qualified advisor. Not only can so many options be overwhelming, but not all ETFs and unit trusts are the same or appropriate for your needs..But, first, let's look at the difference between these two investment options..Understanding unit trusts and ETFs.Unit trusts and ETFs are both pooled investment products, officially referred to as collective investment schemes, which means they gather funds from many diferent investors to invest in a diversified portfolio of underlying assets. These assets are typically listed stocks, bonds, or other securities. .For instance, an S&P 500 ETF or unit trust track the performance of more than 500 major US companies. This helps to spread your risk because you're not relying on the performance of one company..The main difference between unit trusts and ETFs is how they are traded. .Unit trusts generally have an open-ended fund structure, allowing fund managers to adjust the number of units based on investor demand. These typically trade at the end of the day at the net asset value (NAV) price. In contrast, ETFs are traded on stock exchanges throughout the trading day, with prices fluctuating based on market demand and supply..It is often thought that unit trusts are more expensive than ETFs. This is based on two main trading costs: higher fund management fees and sales charges. .Unit trusts usually have a total expense ratio (TER) of 1.5% to 2% per year, while ETFs often have a TER below 0.5% per year. This is mainly because ETFs are passive funds, meaning the holdings are not traded to take advantage of changes in circumstances, which is what unit trust managers are actively doing..Here's a quick comparison of typical costs:.The hidden cost of ETFs.These percentages might seem insignificant, but fees have a very large impact on your portfolio. Over and above management cost on a portfolio/instrument, the spread cost is also an important factor to keep in mind. .'Spread' is the difference between the highest price a buyer will pay and the lowest price a seller will accept. This spread can represent a significant cost, especially in markets with low trading volume..With a unit trust, you buy at the daily closing price, with the provider needing to absorb the cost of that transaction, including market spreads, taxes and brokerage fees. This activity tends to push up the fees for unit trusts compared to ETFs that seldom make trades..Choosing the right investment.Ultimately, while ETFs generally have lower fees, this is not the only factor to consider. Both unit trusts and ETFs have their unique advantages and can play a valuable role in a diversified investment portfolio. .Consulting a financial advisor is the best way to get the confidence that your decision will help you reach your future financial goals. 'Pre-packaged investments' like unit trusts and ETFs definitely simpllify your decisions, but avoid the trap of thinking that simpler decisions are necessarily the right decisions..The best way to have the comfortable retirement that you dream of is to remain committed to a sensible financial plan. Forget the get-rich-quick schemes and promises, stick to your knitting and keep investing. Which instruments or funds you use is the more complex question, and I think ETFs ands unit trusts are a great place to start if you want to plan properly for your future. I invite you to get in touch if you have any questions about how you can structure your retirement planning so that you don't fall into the 94% of unprepared South African retirees..* Ruan Breed is a financial advisor at Brenthurst Stellenbosch and George. ruan@brenthurstwealth.co.za .Read also: Reinvigorate your Retirement PlanThe impact of AI on investingMy offshore investing journey

What’s a good retirement saving option?

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