Which investment type pools funds to buy a diversified portfolio of stocks from various industries?

• A. ETF
• B. Index Fund
• C. Mutual Fund
• D. Hedge Fund

Answer: (C)

Pooling money from many investors to buy a broad mix of stocks from different industries is what a mutual fund does. A mutual fund collects contributions from numerous people and then hires professional managers to build and maintain a diversified portfolio. By spreading investments across many industries, it reduces the impact of a poor showing by any single company and provides access to a diversified collection of assets with relatively low minimums. ETFs and index funds also offer diversification, but ETFs are traded on an exchange like individual stocks and index funds are typically passively managed to track a market index, whereas hedge funds are generally open only to accredited investors and pursue more specialized, riskier strategies.