Pooled Funds
Candlefocus EditorPooled funds are available in a variety of types, but the two most common are mutual funds and unit investment trusts (UITs). Mutual funds are professionally managed by a fund company and contain a mix of stocks, bonds, and/or other investments, depending on the make-up of the fund. When purchasers invest in a mutual fund, they do so by buying a share of the fund. UITs are also professionally managed but their make-up is fixed upon their creation – meaning they will not typically change the investments they hold over time. With a UIT, purchasers buy individual units.
Pooled funds give the individual investor access to the same kind of buying power that we typically see only with huge investment houses, pension funds, and endowments. The amount of money these institutions can put together for a single purchase is simply too large for the average investor to match. By pooling funds, these large investors have greater liquidity and buying power, which allows them to purchase large amounts of securities at lower trading costs than if they were buying on their own.
Pooled funds also make it easier for individual investors to diversify their portfolios. By investing in a single fund, investors have exposure to a wide range of investments, which helps to minimize the risk of the overall portfolio. Furthermore, pooled funds provide a level of professional management that many investors may not be able to access on their own.
As with any type of investment, pooled funds also carry some risks. The main risk is that the value of the investment may decrease due to changes in the market. Additionally, when investing in mutual funds, investors must pay management fees as a percentage of their investment. Moreover, the fees associated with UITs are typically higher than those associated with mutual funds.
To sum up, pooled funds are a great way for individual investors to access a wide range of investments and talented fund managers. By taking advantage of a pool of investors, individuals can benefit from the same advantages that large institutional investors enjoy. However, investing in pooled funds also carries certain risks that investors should be aware of before investing.