What do unit trust and a RM10 restaurant have in common?

Recently I attend a Robert Young seminar, a speaker from Singapore. He makes a simple analogy to describe the concept of a unit trust.

There is this restaurant that sells each dish for RM10. You only have RM10. So when you go by yourself, you only can buy one dish. You may get the dish that is tasty or to your liking and you may not. But as you don’t have any more money, you have to eat it regardless.

But then if you take 9 of you friends who also have only RM10 each. You can buy 10 different dishes that can be shared. From the 10 dishes, you may like all or you may not. You can eat what you like and not what you don’t like.

This is the same with unit trust, where you can own 10 or more blue chip company equities with a small amount usually RM1,000. If you try to enter the share market on you own, you usually can afford to buy only one blue chip company. If the share price go up you are in heaven, if the price go down you are in hot water.

In unit trust the loss from shares that go down will be balanced by the gain from other shares that went up.

So guys, it looks like varieties do make it tastier and safer for all.