Introduction - Introduction
There are a wide variety of investments vehicles in which a large pool of investors combine their assets and entrust them to a professional portfolio manager. One of the main advantages of these types of investments is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities that would be quite difficult (if not impossible) to create with a small amount of capital. Fractional ownership in the portfolio is made through the purchase of shares. Each shareholder participates proportionally in the portfolio's gain or loss. Some of the more popular investments in this category include:
A mutual fund is an investment vehicle that is made up of a pool of funds collected from many investors, for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Open-end mutual funds and closed-end mutual funds represent two of the three types of investment companies.
Unit Investment Trusts
Unit Investment Trusts (UITs) represent the third type of investment company. UITs buy and hold a fixed, unmanaged portfolio, generally of stocks and bonds, as redeemable "units" to investors for a specific period of time. It is designed to provide capital appreciation and/or dividend income.
An ETF is a fund that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.
Hedge funds are aggressively managed portfolios that use advanced investment strategies in an effort to generate high returns (either in an absolute sense or over a specified market benchmark). Hedge funds can be thought of as mutual funds for the super rich.
Real Estate Investment Trusts
A Real Estate Investment Trust (REIT) is a dividend-paying stock that focuses on real estate.