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?
Mutual Funds are the most well-known pooled investment type. The money in these ventures is invested in securities such as stocks, bonds and other assets. These are generally more mainstream styles of pooled investments that are managed by professionals.
Exchange-Traded Funds (ETFs)
ETFs are traded on an open exchange in the same way that stocks are traded. The price will vary throughout the day due to the continuously traded nature of an ETF. Mutual funds, on the other hand, are traded only once per day. Similar to a mutual fund, an ETF holds numerous investments within it, thus diversifying the investment for all investors involved. ETFs also typically have lower rates than a mutual fund.
Closed-end funds are similar to ETFs as they’re also traded on an open exchange. However, much like a mutual fund, they need to be actively managed, unlike ETFs, which are passively managed.
A mortgage pool is an excellent alternative investment that allows investors a chance to invest in real estate through mortgage lending. Investors pool their money together and invest in real estate projects, often managed by a Mortgage Investment Corporation (MIC). An MIC manages the investment and is in charge of finding reliable real estate projects to provide funding to.
Pooling resources can be an incredible option for a variety of reason. After all, there’s a reason we have the saying stronger together. When individual investors pool their capital, it offers them a broader range of investment opportunities. From traditional investments to mortgage investments, pooling capital is a great way to take your investment portfolio to the next level. If you’re interested in mortgage pools, get in touch with Jordan on our team today. No one wants to jump into a ball pit with just one ball. When you have more than one investor, you fill the pool and make it something everyone can benefit from.