What are Pooled Investment Accounts?

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Pooled investments can provide investors a diversified portfolio with a single investment.
Pooled investments can provide investors a diversified portfolio with a single investment. (Image: Comstock/Comstock/Getty Images)

Two important factors that relate to successful investing are diversification and professional management of funds. Diversification means having your funds invested in a variety of securities in a variety of sectors. This provides downside protection for your portfolio in the event of a significant drop in one investment. Professional management is important, particularly for investors who don't have the expertise or time to manage their own funds. Pooled investments can provide small investors with access to both of these benefits.

Pooled Investment Account

A pooled investment account is a financial account with an investment company that sells pooled investments. The most common form of pooled investment is the mutual fund. The investment company sells shares of the mutual fund to a number of different investors. All of the funds that are from all of the investors are pooled together and used to buy a portfolio of securities that conform to the mutual fund's investment objective. Each investor receives a pro rate share of each security held by the mutual fund, and each investor shares in the profits and losses of the portfolio.

Types of Pool Investments

A pooled investment vehicle is any investment company as defined by the Investment Company Act of 1940. Mutual fund companies are the most common form of pooled investment vehicle, but they are not the only type. Other types of companies that offer pooled investment accounts include unit investment trusts, exchange traded funds, collective investment funds and closed-end funds.

Benefits

Pooled investment accounts allow you to obtain a diversified portfolio of securities for a minimal investment. It is unlikely that you would be able to obtain this level of diversification on your own without a substantially greater investment. There are thousands of pooled investment accounts that specialize in different investment objectives which are suitable for people with different investment temperaments, ranging from conservative, low-risk accounts to aggressive, high-risk, high-reward accounts. Shares of pooled investment accounts are typically priced at their net asset value and can be sold back to the investment company on any business day.

Considerations

Pooled investment vehicles may charge a load, also known as a sales charge, or a redemption fee. Investment companies typically charge a percentage of the pooled assets in the fund as a management fee, which can affect the return on your investment. Even though pooled investment accounts can provide you will diversification of your assets and professional management, there is no guarantee that the investment will make money. You may lose some or all of your investment. Past performance by any pooled investment vehicle is never a guarantee of future results.

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