Stocks vs ETFs vs unit trusts
These are the three most common ways South Africans invest — and each suits a different style. Here's how they compare on control, cost, risk and effort, so you can choose the right mix.
Individual stocks (shares)
Buying a share means owning a piece of one specific company. If you pick well, the upside can be significant. But your outcome rides entirely on that single business, so shares are the highest-risk of the three and demand the most research.
Best for: investors who enjoy researching companies and are comfortable with higher risk for the chance of higher return.
ETFs (exchange-traded funds)
An ETF holds a basket of many shares (or other assets) and trades on the exchange like a share. Most track an index and charge low annual fees. One purchase gives you instant diversification, which is why ETFs are a favourite starting point for beginners.
Best for: hands-off investors who want diversification and low costs without picking individual companies.
Unit trusts
A unit trust (also called a mutual fund) also pools investors' money into a basket of assets, but it isn't traded on an exchange. Instead, you buy and sell units once a day at a price set by the fund manager. Many unit trusts are actively managed — a professional chooses the holdings, aiming to beat the market — which usually means higher fees.
Best for: investors who want professional active management and don't mind paying more for it.
Side-by-side comparison
| Individual stocks | ETFs | Unit trusts | |
|---|---|---|---|
| How it trades | Live, during market hours | Live, during market hours | Priced once a day, after the close |
| Diversification | None from one holding | Built in — dozens to thousands of companies | Built in, but often narrower than an index ETF |
| Typical annual cost | 0% | 0.10% – 0.75% | 0.75% – 2.00% |
| Other costs | Brokerage per trade | Brokerage per trade | Often no brokerage; may carry initial or advice fees |
| Managed by | You | A rules-based index, mostly | A fund manager making active choices |
| Research effort | High and ongoing | Low | Low to choose, moderate to monitor the manager |
| Minimum to start | R100 – R500 | R50 – R100 | R250 – R1 000 / month |
| Suits you if | You enjoy research and accept concentrated risk | You want broad exposure at the lowest cost | You want a debit order and a manager doing the picking |
Why the cost row matters more than it looks
A one-percent difference in annual fees sounds trivial and is not. Fees compound against you in exactly the way returns compound for you, and over an investing lifetime the gap becomes the largest single controllable factor in your outcome.
Take R500 000 invested for 25 years at an 9% return before fees. At a 0.25% annual fee — typical of a low-cost index ETF — you would end with roughly R4.07 million. At 1.75%, typical of an actively managed unit trust, you would end with roughly R2.87 million. The investments performed identically; the fee took about R1.19 million, close to a third of the outcome.
This is not an argument that active management is never worth paying for. It is an argument that it has to clear a high bar consistently, over decades, to be worth the difference — and that the burden of proof sits with the fund.
Which should you choose?
Start with your goal, time horizon and how involved you want to be. If you want simple, low-cost, long-term growth, a broad ETF is a sensible default. If you enjoy analysis and accept more risk, add individual shares. If you prefer a professional to manage the decisions, a unit trust may fit. Whatever you choose, keep an eye on fees and stay diversified.