It is difficult to diversity a portfolio in stocks or commodities for most single investors. Knowing this, many investors put their money in Pooled Investments. Many Pooled Investments have large numbers of investors, making it easier to buy and sell a larger variety of assets.

What Are Pooled Investments?

A fund is set up with a specific financial objective within one or more asset classes. That objective may be anything from stocks, commodities, indexes, bonds or many other classes. The fund then hires a fund manager. The fund manager uses the “pooled” money to trade in assets that are part of the pre-determined asset class or classes.

Various Types of Pooled Investments

One type of Pooled Investment familiar to many investors is a mutual fund, another may be Exchange Traded Funds (ETFs).

Investor Involvement

The investor needs to watch the Pooled Investment to be sure it is meeting expectations, but will not be required to manage their money in any other way. The fund manager is required to research and make trades, within the specified guidelines, in order to enrich the fund.

While shares in a Pooled Investment are purchased singly, they actually encompass a broad range of assets, making less risk for the investor. Depending on an investor’s risk factor, the investment may be essentially stable and trade mostly in companies with good earnings over many years or be at a higher risk and more volatile.

Two Examples of Pooled Investments

  1. In the news recently is the Delaware Pooled Core Plus Fixed Income (Nasdaq:DCPFX) that invests in domestic bonds, and foreign securities. It is a diversified bond mutual fund (or Pooled Investment) with a return of 7.88 percent annualized over the past five years.
  2. Energy and oil afford many ETFs that attract investors. One such ETF is the United States Oil Fund (NYSE:USO). Actively traded, the ETF is priced around $37. A NAV – Net Asset Value – of $36 makes it a more secure investment. This ETF invests in futures contracts in mostly oil or related fuel products.

The Pros of Pooled Investments

  • Less Investor Involvement – many investors want to see their investments grow, but have other demands on their time. They don’t wish to research companies or commodities to make up a diversified portfolio. Pooled Investments most often trade in a wide variety of firms or commodities.
  • Economy of Scale – fund managers have the ability to buy or sell in large quantities. This often yields a better price when buying.
  • Ease of Balancing a Portfolio – with just a few purchases, an investor may balance their portfolio without making too many decisions. Choosing funds with a wide spectrum of assets limits risk also.

Cons of Pooled Investments

  • Detriment of Scale – large sell orders take time to execute. Sometimes active trading will diminish the return for the manager of a fund.
  • Loss of Control – an investor has very little control over what assets are traded and may not agree with the manager.