#375 - Asset Allocation Ingredients: What Are UITs and Structured Notes?

As you start retirement planning you’ll want to think about using various types of retirement vehicles. This is why we are exploring different asset allocation ingredients in this series. I want you to understand the basics of these investment vehicles so that you can make an educated decision on what to include in your retirement portfolio.

Today you’ll learn about closed-end mutual funds, UITs, and structured notes. Listen in and learn why it’s important to keep your investments simple. You don’t need to overcomplicate your investments.

“Listen in and learn why it’s important to keep your investments simple and why you don’t need to overcomplicate your investments. ”

What is a closed-end mutual fund?

The biggest difference between a closed-end mutual fund and an ETF or open-ended fund is they issue a fixed number of shares. Because of this, closed-end mutual funds act more like individual stocks. They even have an initial public offering just like a stock does. Sometimes they will even roll out a secondary offering. Since there are a limited number of shares, that means there is no more money coming in or out of the fund. Closed-end funds also use leverage as a way to improve returns.

What are the advantages of closed-end mutual funds?

Open-ended funds and ETFs always trade at net asset value, however, closed-ended funds can trade at a premium or at a discount. They aren’t typically purchased at the net asset value.

Closed-ended funds don’t experience cashflow issues since they have a fixed amount they are investing. They don’t have to sell securities just because someone needs the money. People usually buy closed-end funds because of the distribution yields they payout. But it is important to remember that the high yield is usually due to the leverage they use. Discover the disadvantages of closed-end funds by pressing play.

“Discover the advantages and disadvantages of closed-end funds by pressing play.”

What is a unit investment trust (UIT)?

A unit investment trust (UIT) is a fixed portfolio. You’ll get a basket of securities in certain percentages that stays consistent over time. At a predetermined date, this trust matures like a bond and you’ll receive the cash value. The benefits of UITs are the costs and the lack of yearly capital gains. Since the trust matures at a certain time you will only need to worry about capital gains taxes at that time. They are also low in cost due to less management. Discover why I haven’t used UITs and why I really don’t like structured funds by listening.

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