Unit Investment Trusts

Unit Investment Trusts was listed as one of the places baby boomers should consider investing their savings given the current volatile equity markets. It made the list at #3 and it was an investment I had never heard of.

In summary, unit investment trusts (UIT) are a type of investment company, similar to mutual funds and closed-end funds. They act like mutual funds in that they offer “units” (like shares) and the UIT will buy those units back from investors if they choose to sell at the net asset value. Some ETFs are actually structured as UITs.

Like mutual funds, UITs can hold stocks or bonds as their holdings and they usually have a focus. Some look for growth, others look for income generation; again, much like mutual funds. The key difference between the two is that mutual funds will change their holdings whereas UITs typically establish the portfolio and never change it.

The reason these get little press is because there isn’t much profit in them. Since there is no active management, there aren’t high expense ratios. ON the flip side, because there is no active management and no share turnover, they’re remarkably tax efficient.

Give them a look.