Pooling Funds Yields Big Returns

For many, making any type of investment, whether it be in a publicly traded stock or a privately owned business, is a complex process which is quite foreign to most. However, there’s a way to invest without needing years of experience or a lot of upfront capital. It’s a collaborative approach, where you join forces with other investors to yield big returns and build a brighter financial future.

Strength in Numbers: The Magic of Diversification

 Imagine entrusting your entire financial well-being to a single investment. Now picture the market taking an unexpected downturn, leaving you exposed to significant losses. This is where the cornerstone of pooling funds comes into play. Investment diversification is an important tool to help investors achieve the proper balance between growth and risk for their situation. Diversification is achieved by  spreading your investments across various different types of investment, including stocks, bonds, and cash. [1]

Different types of investments  react differently to changes in the economy and market fluctuations, so, by diversifying you significantly lower your risk. Even if some investments underperform, others are likely to excel, evening out the overall impact and safeguarding your portfolio of investments from substantial losses.

Unlocking Economies of Scale: Bargaining Power in Numbers

Have you ever noticed how buying in bulk lowers the price per unit? Stores such as Costco and Walmart are the perfect examples. They buy huge quantities of goods in order to receive low bulk prices, and they pass the savings onto their customers. [2] This is called economies of scale; the more you buy the cheaper the price per item will be. Pooling funds operate in the same manner, leveraging the concept of economies of scale. By combining your capital with others, you collectively have more money to buy more at the cheaper price and to afford what alone you could not.  Pooling funds allows you to gain access to benefits traditionally reserved for high-net-worth investors.

Imagine you have $100 to invest. On your own, you might be limited to buying just a few shares of a single company’s stock.  However, when you pool your $100 with others in a similar situation, the combined capital allows the fund manager to invest for you in a  variety of companies and assets in a variety of industries. This could include established businesses that you recognize, smaller companies with high growth potential, and even real estate or commodities like gold or oil.

Professional Expertise at Your Service: Knowledge is Power

Unless you’re a seasoned financial analyst, navigating the intricate details of investing can be a daunting task. This is where pooling funds offers another major advantage – access to professional money managers.

When you invest in a pooled fund, you tap into the knowledge and experience of seasoned professionals dedicated to managing your investment on your behalf. These asset managers diligently monitor market conditions and analyze investment portfolio performance. They promptly adjust investment strategies to capitalize on the emerging opportunities and to mitigate potential risks. This active approach ensures that investment portfolios remain aligned with investors’ long-term financial goals, optimizing returns while minimizing volatility and losses. [3]  You can relax, focus on other aspects of your life, and be confident that your investments are in capable hands.

Democratizing Investments: Making Wealth Building Accessible to All

Traditionally, certain investment avenues require a high minimum dollar entry point. Pooling funds is the exception, allowing the pool to meet that minimum dollar amount even though each individual in the pool, on their own, does not.  Pooling funds makes investment opportunities  accessible to a wider audience. Loan syndication, when a bank sells a portion of a very large specific loan to other banks is a good example of banks pooling funds. Democratizing pooling means that individuals with limited capital can now participate in these better market opportunities and grow their wealth alongside seasoned investors.

Another driver of democratizing investing is the growing awareness of income inequality and the desire to provide opportunities for all individuals to build wealth. Proponents of democratizing investing believe that by making investing more accessible, more people will be able to benefit from the opportunities that are out there. [4] Democratization of investment opportunities empowers individuals at all financial levels to meaningfully participate in wealth creation.

Extraordinary Profits: Pooled Funds Make Bigger Returns

Private equity funds, which are just simply a pool of money that came from high net worth individuals and institutions, a track record of outperforming traditional asset classes over the long term. According to a report by Cambridge Associates, private equity funds of funds outperformed the S&P 500 by an average of 4.4% per year over the past 20 years. [5]  The same is true of the syndicated loans of banks and other lenders, they outperform other loans.  The combined benefits of diversification, economies of scale and professional managers through pooling funds consistently result in extraordinary profits and returns.

The Bottom Line: Don’t Go In Alone, Pool Your Way to Investment Success

Pooling funds is a powerful tool that can supercharge your investment strategy. By leveraging diversification, professional management, and economies of scale, you can unlock all kinds of possibilities previously out of reach. The opportunities available to pooled funds outperform traditional asset classes of investment. So, ditch the solo act and join the investment pool party – your future financial self will thank you.