Can pooled funds make me a millionaire?

Question: Can I become a millionaire through pooled fund investing and when is the right time to buy pooled funds? Asked at “Ask a Friend, Ask Efren” free service at www.personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram and Facebook

Answer: Pooled funds can make you a millionaire. However, becoming a millionaire from pooled fund investing does not come instantly. The type of pooled fund you invest in, the amount you invest at the start and what you add periodically will determine how soon you can reach millionaire status.

By definition, pooled funds are investment vehicles that solicit money from people who bear the same investment objective and risk preference. On one hand, a money market pooled fund solicits funds from ultra conservative individuals seeking modest income with the least risk to their investments. On the other hand, equity pooled funds solicit funds from individuals who desire more of capital appreciation, which can provide much higher returns, but are also capable of taking higher risks on their investments.

Pooled funds are perfect for people who are not “S.E.T.” to invest directly. “S” stands for the sizable funds that you will need to be able to access near real-time information and in-depth company valuation studies to make better investment decisions. “E” stands for the expertise you will need to fully comprehend that information and research reports to which you will have access. In addition, E also stands for experience you will need to read the proverbial tea leaves or trends in market prices. And “T” stands for the time you will need to manage your money, which is all the time. Active investing is a full-time endeavor on which many have built their career and fortune.

So, if you lack any one of the S, E or T, you will be better off having your money handled by those who manage sizable funds, bear the expertise and experience in investing, and have all the time in the world to manage funds. And those would be pooled funds.

There is one thing that you should know about pooled funds though, especially if you will engage in periodic investing. Try as much as possible to invest before their 12 noon cutoff on Mondays, Tuesdays, Wednesdays and Thursdays. Never invest after their 12 noon cut off or on any day prior to a weekend or holiday. This is because pooled funds are on forward pricing.

In forward pricing, you will get to know how much shares or units you buy after the fund you bought is priced in the afternoon. That means that even if a fund is able to earn on the investment you made in the morning, you will not have a share in those earnings as the price in the afternoon will already be inclusive of those earnings. You will only start to earn by the next working day. This practice was adopted instead of using the previous day’s price.

If the previous day’s prices were used for pooled funds, unscrupulous individuals could theoretically, on trade date minus one, sell down the securities that a pooled fund owned just to get to buy the pooled fund at a lower price on trade date.

Imagine buying a pooled fund after the 12 noon cutoff. You will get to be booked the following workday morning, priced in the afternoon of that day, and start to earn two workdays later. If you buy on a Thursday afternoon or on any day prior to a weekend or holiday, you will only start to earn after the weekend or the holiday.

Be patient with pooled funds as they will get you to your millionaire status in due time. But you also need to do your fair share by continually investing.

Stay safe and healthy. INQ

Efren Ll. Cruz is a registered financial planner of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines. Join our Yaman Coach Free Webinar series. For details, email [email protected]. To learn more about personal financial planning, attend the 87th RFP Program in January 2021. To inquire, email [email protected] or text at 0917-.6248110