What are Pooled Investments?
Put simply, pooled investments are the pooling (or gathering) of funds from multiple sources for a collective investment. This means that individual investors can combine their funds, providing wider opportunities for investment. Whilst investors only need to put in a small amount themselves, this increases the investment pool of the wider network of investors, and therefore the overall investment pot.
This system can be seen in a wide variety of different sectors. For example, in the entertainment industry, you can find progressive slot machines on online casino platforms. Whilst regular slot games have a jackpot for each game, progressive slots have a jackpot for the entire network. Looking at the Age of the Gods jackpot games, every time someone places a wager on God of Storms, Cash Collect, King of Olympus, Ruler of the Sky, and more, the collective jackpot increases. The jackpot is only reset once the prize is won on one of the games in the network.
Popular Types of Pooled Investments
Essentially, pooled investments allow a collective of investors to appear and act as a single account holder. The money itself is managed by financial professionals or an investment portfolio manager, someone that the group has instructed to monitor the performance of the investment and act on their behalf. Perhaps the most common example of this in action is mutual funds. As the name suggests, mutual funds gather, well, mutual funds from investors, which are invested in a portfolio of stocks, bonds, and other securities.
You've also got investment funds, which are the products that are created entirely for collecting smaller investors' capital for investment. Elsewhere, exchange-traded funds (ETFs) are a pre-defined set of bonds, stocks, and other securities that are listed on the exchange as one investment. Pension funds, hedge funds, and endowments can all be further examples of pooled investments in action. Investment clubs, trusts, and partnerships all use funds that are pooled together for investment, too.
Pros and Cons of Pooled Investments
Theoretically, pooled investments allow smaller investors to benefit from the opportunities that would normally be only available to larger investors. In business terms, this is what is known as economies of scale. Essentially, pooling together money could invest in a larger number of commodities, with a smaller minimum investment, compared with an individual investment. This means there is the potential for more opportunities.
Further to this, as the investments are typically spread out over a wider range of securities, the portfolio is more diversified. If one of the investments were to underperform, the effects of the dip should have less of an impact on the overall performance of the portfolio.
On the other hand, the downside of pooled investment is that the impact of over-performing investments can be limited by the same logic, too. Plus, individuals have little control over the management of the funds - this is dealt with by the professional manager. In turn, this can increase overheads as the management company and team will be paid a fee for their services.
That said, it is always important to ensure that investments are made through a professional. This way, you can ensure your decisions are made in the most informed way possible.
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