Which financial product allows investors to pool their money for diversified investments?

Mutual funds are a financial product specifically designed to allow multiple investors to pool their money together to invest in a diversified portfolio of assets. By pooling resources, mutual funds enable investors to access a broader range of investments than they might be able to on their own, including stocks, bonds, or other securities. This diversification helps spread risk because the performance of the fund is not solely dependent on a single asset.

Investors in mutual funds benefit from professional management, as these funds are typically managed by financial experts who make investment decisions on behalf of the investors. This approach can be particularly advantageous for investors who may not have the time, knowledge, or resources to manage a diversified investment portfolio independently.

In contrast, stocks and bonds are individual securities that do not provide diversification on their own unless an investor holds a large number of them. Certificates of Deposit, while being a secure investment option, do not involve pooling for diversified investments; they are fixed-term deposits offered by banks. Therefore, mutual funds stand out as the product that best facilitates collective investment and diversification among a variety of asset classes.