Most people saving for retirement have never heard of collective investment trusts (CITs), even though they may hold them in their employer-sponsored plans. This savings tool may offer many benefits over the mutual funds your employer might provide in your 401(k), with lower fees, added tax efficiency and flexibility. But it also comes with risks. Given how popular CITs are — they hold almost a third of the assets in defined contribution plans, worth about $7 trillion — you should give your retirement plan a once-over.
A CIT is an investment vehicle that pools investor funds to purchase a portfolio of investments, much like a mutual fund, but with some important differences. CITs are not traded on the stock market and are administered by banks or trust companies. They may even hold the same companies as a mutual fund, but CITs are almost always cheaper because they have lower regulatory and marketing requirements.
