Many people like pie – but what about PIE?

PIEs (portfolio investment entities), make up the core of many wealth-building strategies. Read on to discover how PIEs diversify risk, tap new markets — and more importantly, grow your money. 

What is a portfolio investment entity (PIE)?

Portfolio investment entities are vehicles (usually funds or trusts) that pool money from many investors to buy a “basket” of assets. These may include stocks, bonds, real estate, or alternative assets. Investing in a PIE means you own some of every asset in the basket. In other words: you own a slice of the PIE. 

Benefits: Why invest in a portfolio investment entity?

PIEs offer unique benefits like automatic diversification and expert guidance, which can make investing easier in today’s fast-paced financial world. 

Built-in diversification

Because PIEs invest in many assets, buying in can diversify your portfolio. Spreading money around this way can increase your financial resilience. If one asset or industry tanks, your overall portfolio may not suffer as much. 

Some of this increased diversification comes from their sheer size. Because they pool money from many investors, PIEs can make bigger investments than most individuals. 

You can also mix and match PIEs that focus on specific assets, industries, or strategies for even more diversification. These benefits are especially helpful for investors who lack the money or expertise to diversify on their own. 

Potential economies of scale 

Some PIEs also achieve economies of scale, which can benefit investors. Because PIEs pool investor funds, they can “buy in bulk,” potentially lowering individual investors’ costs and fees. 

Enjoy tax efficiency

Some PIEs offer tax advantages, though some are better deals than others. For instance, ETFs may be more tax-efficient than mutual funds due to differences in how they handle capital gains. Depending on their exact structure and jurisdiction, you may enjoy:

  • Lower taxes on dividends, interest, or capital gains
  • Deductions on investment-related expenses
  • Tax-deferred growth (particularly for PIEs held in retirement accounts)
  • Taxation using “prescribed investor rates” on New Zealand PIEs, instead of a personal income tax rate

Anywhere you catch a break puts more money in your pocket — or your investment account. 

Professional management at your service

Most PIEs hire professional fund managers to research, buy, and sell assets. Relying on their expertise means you don’t have to tackle these tasks yourself. 

Of course, it’s important to ensure that each PIE fits your needs. Still, that’s easier than researching hundreds of assets on your own!

Regulatory oversight for your protection

In the U.S., most PIEs — including mutual funds, ETFs, and investment trusts — follow SEC regulations. Depending on a PIE’s exact structure and jurisdiction, regulators may:

  • Determine when and what information a PIE must report to investors and regulators
  • Establish “fair practice” safeguards
  • Set rules and enforce punishments for fraud or mismanagement

These rules help establish standards of transparency, protect investors’ interests, and keep regulators compliant to safeguard investors’ capital. 

However, not all PIEs have to follow the same regulations. For instance, hedge funds may be exempt from certain protections, increasing their investment risks. 

Types of portfolio investment entities

Mutual funds: The original PIE

Mutual funds are a type of PIE that pool investor funds to buy stocks, bonds, real estate, or other assets according to a stated strategy or set of goals. 

Historically, mutual funds hired active management teams, though modern funds may take a passive approach. 

(Passive investment funds typically buy assets that follow an index, such as the S&P 500 index. An index is basically a list of stocks that meet specific criteria. E.g., the S&P 500 follows about 500 of the largest U.S.-listed stocks. A passive S&P 500 fund would buy most or all of the stocks in the S&P 500 index.) 

However, many still charge higher investment minimums and fees than their ETF counterparts. Additionally, investors can only buy and sell shares once daily at a set price.  

Exchange-traded funds (ETFs): flexibility and cost efficiency

ETFs resemble mutual funds in that they pool money to buy a basket of securities. They also come in a variety of flavors and goals, such as income-focused or environmentally friendly. 

But unlike mutual funds, ETFs trade like stocks. You can buy them anytime the markets are open, and their prices fluctuate throughout the day. Many (but not all) also charge lower fees and have a more tax-efficient structure. 

Hedge funds: for the sophisticated investor

Hedge funds are private investment funds (they don’t trade on exchanges) that use higher-risk strategies to chase higher rewards. A hedge fund might:

  • Invest in advanced assets like derivatives, currencies, or interest rates
  • Pour money into risky markets or industries
  • Use leverage (debt) to amplify their returns — and risk

Due to their strategies and decreased regulations, hedge funds tend to be riskier than other PIEs. They also charge higher fees and set higher investment minimums, often starting around $1 million. As a result, you probably can’t invest unless you’re an accredited (high-earning or high-net-worth) investor.  

Unit trusts: simplify investing

Unit trusts are unique assets established by a trust deed that identifies investors as beneficiaries. They invest pooled funds into a professionally managed portfolio based on the trust’s strategy. (Income generation, tax efficiency, etc.) Each investor receives a stake represented by “units.” These units fluctuate in value based on the underlying portfolio’s performance. 

In the U.S., unit trusts expire at a set date, at which point they pay any profits to their beneficiaries. This setup has some downsides, like limited control over investment decisions and inflexible timelines. However, they’re relatively liquid, as investors can sell their stake on secondary markets. They also present a viable opportunity to generate wealth or income.  

Investment trusts: leveraged risk and reward

Another unique type of asset, investment trusts are structured as publicly traded incorporated companies. 

Unlike unit trusts, which issue more units as needed, investment trusts issue a set number of shares. Their goal: to make money by investing in other companies. To achieve their goal, each trust establishes a board of directors to make decisions. 

Their unusual setup allows investment trusts to operate flexibly, investing in niche or less liquid assets and over longer timelines. They can use leverage (debt) to buy more assets, potentially increasing both profits and risk. 

Unlike ETFs, the value of the trust’s shares can differ from the value of the underlying assets, allowing investors to buy “discounted” shares. 

Steps to choose the right PIE for your portfolio

Most investors buy PIEs at some point in their journey — but not all PIEs are baked equal. 

Define your investment goals and risk tolerance

Understanding your goals can help you choose the most suitable PIE(s). 

Do you want to invest in a diversified portfolio for retirement? Engage in thematic investing like environmentally friendly or socially responsible investing? Generate short-term income? Improve your portfolio’s tax efficiency? How much can you afford to lose financially AND emotionally along the way?

Knowing what you hope to achieve — and how much risk you can tolerate — will guide you toward the right PIEs. 

Research and compare options

After identifying your needs, it’s time to find PIEs that your (financial) tastebuds will love. Most investors go for a mix of stock- and bond-based ETFs and mutual funds. You may also decide that hedge funds or trusts fit your needs and financial situation. 

Be sure to compare each PIE’s strategies, holdings, risks, and long-term outcomes.  

Select the right platform

Depending on the PIE, you may need to open an investment account with a specific brokerage to get started. (You might also be able to buy some assets through your regular broker.) Spend some time finding a platform that allows you to bake your perfect PIE without draining your wallet. 

Ask important questions

At every stage of PIE and platform selection, stay curious! Ask essential questions like:

  • What kind of fees can I expect? Does the PIE charge an expense ratio, management fees, load fees, or performance fees? How much? When do I have to pay?
  • What will this broker or platform charge me to trade assets? Will I have access to a financial advisor for that price?
  • How quickly can I buy or sell this investment?
  • How will this asset impact my tax situation? Will that change if I invest in a retirement account versus an individual brokerage account?

Remember: Knowledge is power — especially when it comes to your money.  

Know your PIE’s metrics

Aside from these questions, you’ll want to get familiar with each PIE’s metrics. Look at its historical performance — what kind of returns has it generated in the past? Has the expense ratio changed over time? How often does the fund rebalance its holdings? Having these answers at hand will help you make a well-informed decision. 

Start small if you’re unsure 

You don’t have to invest your life savings immediately just because you find a delicious PIE. It’s okay to start small and build your portfolio over time! (Perhaps with dollar-cost averaging or other regular investment strategies.) 

Tracking your PIE investments

Monitoring your investments is one of the most important steps of buying a PIE. But it can be time-consuming and frustrating to add *one more thing* to your plate. 

That’s why Quicken makes it easier. 

Track all your finances in one place — savings plans, budgeting, investments, and more. 

PIE FAQs

Are PIEs suitable for beginner investors?

PIEs offer a great entry point for beginner investors! Their instant diversification and professional management can help newbies feel more confident.  

What are the risks associated with PIEs?

Like all investments, PIEs can’t guarantee you’ll get your money back, let alone make a profit. You’ll also want to watch for high fees, past regulatory actions, and potential tax implications. 

How do I start investing in PIEs?

First, define your goals and risk tolerance, then find a fund — or fund manager — to help meet those goals. From there, you’ll need to open an account, make your first purchase, and prepare to track your investment.