If you’re an enthusiastic share investor, you’ve probably wondered about this one before. Should you outsource the stock selection to a portfolio manager or should you do it yourself? A few things to consider:

Do you have the skills to pick shares?

What a fantastic boost to the ego it will be if your share portfolio performance beats Allan Gray or one of the other award-winning unit trust managers. But unless you know how to analyse a company, accurately estimate its future cash flow and evaluate its business strategy, chances are slim you’d keep it up over the long term.

While I find it great fun to trade my own shares, I have no delusions. My share picking skills are not on par with award-winning investment houses with their CFA-qualified and experienced teams.

Do you have the time to manage shares?

Following company news and calculating whether the share price adjusted appropriately is a full-time job. Unit trust managers have whole teams focusing on the shares in a specific sector. They have the time to visit companies, attend shareholders meetings and ask the difficult questions.

How much are you spending on trading costs?

Because share trading costs generally form a larger percentage of the trade with small amounts, and you often pay a minimum amount (e.g. R120 with ABSA), you could end up paying away more than 1% of the trade for transactions smaller than R12 000. Unit trust fund managers, on the other hand, pool your money with other investors and negotiate much lower trading fees with their brokers. However, what you score in trading costs, you could lose in investment management fees, which are automatically deducted from your unit trust investment every year.

Does SARS view your trading profits as income?

If you are someone who won’t draw the money in your trade account within three years, but believe in frequently trading shares to benefit from short-term price fluctuations, you may find you’re paying less tax if you outsource the job to a unit trust manager who has the same short-term, opportunistic approach. That is because SARS is likely to view your trading profit as income if you sell your private account shares within 3 years of purchase. If you’re in the top tax bracket, this means you have to pay SARS 40% of the profit.

But unit trusts managers can trade the shares as often as they like – they don’t pay tax on their gains in the portfolio. You pay tax on the growth in the unit trust price from the time you invest until you eventually withdraw your investment. If you keep it for longer than three years, SARS views the growth as a capital gain and not as income – even though the fund managers had the freedom to sell shares whenever they saw opportunities. This means you could pay four times less tax than if you traded the same shares yourself.

How much risk do you want to take on?

Unit trust funds are usually well diversified and invest in portfolio of at least 20 shares. This diversification decreases your investment risk. It’s therefore unlikely that you will lose 80% of your money in one year; it’s also unlikely that you will gain 80%. With your own share portfolio you don’t have the restrictions of the Acts regulating unit trusts and can hold only one share in your portfolio, if that’s what you want.

If you’re either a speculative, high-risk investor or a semi-retired portfolio manager, a share trading account will probably appeal to you more.