Two heads are better than one, right? United we stand, divided we fall ... the world is full of aphorisms touting the benefits of banding together. When it comes to our money, there are lots of ways in which we can do better by not going it alone. Permit me to elaborate.
Pooling your ideas
First off, consider investment clubs. You know about them, of course. (If not, learn more here.) They involve a bunch of people (typically 10-20) contributing small sums regularly (typically $25 to $50 each month), and they invest in stocks they've researched and discussed together. Clubs are clearly great things for beginning investors, because they can provide a place to learn together and a way to begin investing without putting a lot of money at risk.
But clubs can be great for more experienced investors, too. Think of it this way: You may not have time to study more than one new company per month, but if you band together with 11 others, you'll be able to cover 144 companies in a year. See? It's the power of leverage. You don't even have to tie up your money with others. If you and your clubmates have the discipline, you can meet regularly, research and discuss companies, and then go off on your own to invest in whichever of them you wish. You basically operate just like a regular investment club, but you stop short of pooling your money.
Fund pools
Then there are mutual funds. They offer another way to benefit by joining with others. Only this time, instead of pooling your time and brains with a handful of others, you're pooling your dollars with thousands of others. And best of all, assuming you chose some top-notch funds, you're letting people who are probably smarter than you when it comes to stock market investing make all the decisions for you. The fund managers will spend their working days studying companies for you, and they'll make all the buying and selling decisions.
It's critical to choose your funds carefully, though. Remember that the majority of them underperform the overall market, meaning you'd be better off in a simple index fund. Still, there are a lot of great managed funds out there. Consider, for example, the Winslow Green Growth (WGGFX) fund, which sports a five-year average annual growth rate of nearly 26%, well above the S&P 500's performance. That's due in large part to its investments in top performers like First Solar
If you'd like help zeroing in on some outstanding funds, I encourage you take advantage of a free 30-day trial of our Motley Fool Champion Funds newsletter, which offers fund recommendations monthly in an easy-to-digest format. (I've found a bunch of winners there, myself.) Its picks have trounced the market over its three-year history. A free trial will give you full access to all past issues, so you can read about each recommendation in detail.
Insurance pools
Another way to pool resources is through insurance. Think about your retirement, for example. Let's say that you and your neighbor each have enough money socked away to last you for what you expect to be the rest of your lives -- to age 95. But let's face it -- one or both of you might live to be 98, or even 101. If that happens, you probably would rather not run out of money.
This is where insurance products can come in handy -- perhaps, for example, "lifetime income annuities," through which you essentially buy income streams guaranteed for life. For example, $100,000 might buy you monthly payments of roughly $500 for the rest of your life, along with various additional benefits and restrictions. You might spend $100,000 for this product and end up receiving $250,000, while your neighbor spends $100,000 and ends up receiving considerably less, as he dies at age 80. The insurance company will probably lose money on you, while making money on your neighbor. The fact that it has pooled your money and your lifetimes makes all this possible. The company can't know how long you'll live, but it can make some very educated guesses about its entire client pool, thus pricing its products appropriately.
So if you're looking to make money, don't always go it alone. Finding others who share your interests can give you a leg up on the competition.
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Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. Chipotle Mexican Grill is a Motley Fool Rule Breakers recommendation and a Motley Fool Hidden Gems (B shares) pick. Try any of our investing services free for 30 days. The Motley Fool is Fools writing for Fools.
