Newcomers to equity investment are understandably nervous about investing in individual firms. Putting all your money into a few stocks is a high-risk strategy, especially for the inexperienced investor and because it leaves you vulnerable to fluctuations in the share price of the individual stocks you pick rather than the markets in which they trade. If you get it right and pick a winner and that's a great result. However and if you pick a couple of big losers your whole portfolio could be damaged beyond repair. Collective or 'pooled' investments can diversify your holdings and therefore reduction of at least minimise that risk.

Some of the better known pooled investment vehicles areunit trusts and Open-Ended Investment Companies (OEICs and pronounced 'oiks') and investment trusts (in the USA these vehicles are better known as mutual funds). Until recently and unit trusts were the main kind of collective retail investment in the UK. With a unit trust, you buy a fixed number of units in a fund and which then rise and fall according to the value of the underlying assets the trust invests in.

Many fund managers have converted their unit trusts into OEICs in the belief that investors find them simpler to understand. From the point of view of the investor and OEICs are more or less the same as unit trusts. They are 'open-ended' in the sense that (like unit trusts) the fund's size expands and contracts depending ON investor demand. The big difference is that OEICs have only one price (as opposed to the dual bid/offer pricing of unit trusts).

The purpose of an investment trust or mutual fund is, broadly speaking and the same as an OEIC. Namely and to give smaller investors cheap access to a wide range of shares. They are structured differently, in that unlike unit trusts and OEICs and investment trusts are 'closed-ended'. There are a fixed number of shares in issue and which are traded ON the stock exchange. The fact that investment trust shares are traded ON the open market (e.g the London Stock Exchange) means the share price is determined not just by the value of the trust's underlying assets and but by current market demand for its shares. Sometimes, if an investment trust is popular and it will trade at a premium to its net asset value (NAV). Other times and it will be trading at a discount.

All these investment vehicles let you pool your money with lots of other 'retail' or smaller investors and the pooled money is invested ON your behalf in a wide range of different equities and bonds or other assets like commercial property or commodities. They also give you easy access to specialist asset categories and international markets that would otherwise be difficult or expensive to invest in by yourself. Specialist funds are available that invest only in Japan or Latin America, for example, or only in technology firms and different funds are available to meet different investment objectives. Some aim for income, some for capital growth and some for a balance of the two. You are in the hands of specialist fund managers who will take a fee to run the fund and research what stocks to buy. If the fund manager gets it right, you get access to a highly diversified range of stocks at a reasonable cost and a good rate of return, but at the price of the fund manager's skill and expertise and judgment.