Retirement Fund

A retirement fund is a classic pooled investment where all the members put their retirement savings into one pot, enabling asset managers to invest their money in a properly diversified portfolio of assets, both here and offshore.

For individual investors, the easiest way to diversify investments is through unit trust funds and life assurance investment (endowment) policies.

There are four main types of pooled investments. These are:
1. Retirement funds;
2. Life assurance investment products, such as endowment policies and retirement annuities, which offer risk-adjusted investment portfolios;
3. Unit trust funds, which are known overseas as mutual funds; and
4. Multi-manager investments where asset managers who are experts in specific market sectors are given different parts of an overall portfolio to manage. The asset managers normally work for a number of different companies. A unit trust fund of funds is an example of a multi-manager product.

The five big advantages of a pooled investment:
1. Diversity. You get little bits of the most important investments the world can offer, from computer giant Microsoft to South Africa's own world players, such as mining company Anglo American or tobacco and luxury goods company Rembrandt.

2. Expertise. If you went to an investment adviser to handle all your investments you would have to pay a lot of money for the kind of expertise you would need. In a pooled investment, you, along with other investors, have access to people who do nothing all day but look for the best investment opportunities. They may not always get it right, but they are more likely to get it right than you are.

3. Time. You are unlikely to have the time available to watch markets with the attention that is required. By pooling your investments, you have more time to get on with earning money in your field of expertise.

4. Investment amounts. You can invest as little as R100 a month in most pooled investments.

5. Regulation. Most pooled investments are carefully regulated, giving you better protection against scams.