Individually, most people could not afford to invest in a range of shares in Japan, North America, Europe and UK and then also invest in a shopping centre in Timbuctoo and a factory unit in Edinburgh.
Most people do not have the expertise or the time either.
Collective investment or 'pooled' investments:
This is where your money is pooled with that of other investors to buy certain assets.
If 10,000 investors all invest £10,000 together that is a collective fund of £100 million. Together you can now:
- Afford to pay an investment manager for their expertise
- Have your investment in a legal, tax efficient contract
- Spread your risk by investing in many shares and properties.
- If one company share price crashes, you do not lose too much
- If one property area falls in popularity, you do not lose too much
This is what collective investment is. These types of investment offer a good way to invest small sums of money where the manager of the fund makes the investment decisions. They are also good if you want to invest in a specific area but want to spread the risk and costs that are associated with direct holdings.
Many of us actually have collective investments and do not realise it. Examples of collective investments are:
- Pension funds
- Insurance company funds
- Unit trusts
- Investment trusts
Basically, every type of investment in these pages.