03: Pooling the risk

There is much to be said for buying shares via pooled funds such as unit trusts and investment trusts. Doing so greatly reduces the paperwork involved with owning individual shares, and saves you time by entrusting decision-making to an expert fund manager.

Because an investment fund holds a wide range of different shares, it also greatly reduces the risks associated with stock market investment. If one of the companies held by the fund experiences problems, it is unlikely to result in more than a minor dip in overall performance because it will probably account for no more than 1% or 2% of the fund’s total equity holding.

Pooled funds are also a convenient way of gaining a good spread of gilts and corporate bonds, and are the only realistic way for most private investors to obtain exposure to commercial property.Last Updated