A pooled investment is when numerous individual investors pool their money together to invest in larger-sized opportunities. Pooling resources has always been an excellent way for individuals to have the same kind of power as larger corporations or wealthy individuals. In the case of investing, pooling money from numerous individuals has many advantages.
When money is pooled together, it allows investors to invest in a few different avenues and alternative investment streams, thus diversifying their portfolio. With the same amount of money, an investor can be involved in numerous investments, thereby lessening their risk of losing their investment in one single avenue that underperforms.
Investing in Larger Opportunities
Investing in a pooled investment allows individuals to invest in projects and opportunities that otherwise would only be available to those with a lot of capital to invest. These bigger opportunities can often yield more substantial returns. By pooling capital, individual investors have a chance to buy into larger investments and alternative investments they otherwise could not.
Saving on Transactional Costs
When you pool your money and, therefore, have more buying power, your fees can be lower. Think of a small, family-run grocery store in comparison to a chain. The chain has more buying power and, therefore, can negotiate lower costs and rates because they can buy more. This same logic applies to a group of investors.
In many cases, professional management is involved in pooled investments. When all the money is together, there’s a fund manager or investor who invests and manages the pool. Having a professional manager can be a blessing, even if it does take some of the control away from the individual investor.
Top Types of Pooled Investments
Now that you know the benefits of pooled investments, what are the most common ones available?