Unit investment trusts represent an interesting opportunity for investors to grow their money. A unit investment trust typically purchases a mixture of stocks and bonds which have been chosen by a team of professional investors. Unlike mutual funds, which buy and sell securities in their portfolios in reaction to market conditions, unit investment trusts are not managed vehicles. They simply buy and hold those investments.
One of the advantages of unit investment trusts is that they can be used to meet a wide variety of investment objectives. Investors can find unit trusts that invest in very aggressive growth stocks, as well as value stocks, high yield bonds and even government bonds. This allows each individual investor to choose the unit investment trust that best meets their needs. Investors who are many years from retirement might want to choose a unit trust invested primarily in stocks, while those closer to retirement might want to choose a unit trust with a more balanced mixture of stocks and bonds.
Even though a unit trust can be a good investment, it is important for investors to be aware of the possible risks. One of the most significant risks of a unit investment trust is that there is no fund manager to react to changing market conditions. If the stock market begins to fall, the value of the stock securities held within the unit trust will fall as well, potentially making the investment worth less than the original purchase price.
Unit investment trusts that hold a large percentage of stocks face the same market risks as mutual funds with the same types of investment. Whenever a fund or a trust invests in individual securities, there is always the risk that one or more of those stocks will become worthless or nearly so. Investors can mitigate this risk somewhat by reviewing the portfolio and checking the finances of the stocks within the portfolio. But there is no way to completely eliminate stock risk from a unit trust that holds stocks.