Mutual funds diversify their investors' money by purchasing multiple types of stocks and bonds.
Here's how it works:
1. Mutual funds pool money from many investors to create a diversified portfolio.
2. This portfolio includes a variety of stocks (shares of ownership in companies) and bonds (debt securities issued by corporations or governments).
3. By investing in different types of stocks and bonds across various industries and sectors, mutual funds spread out the risk.
4. If one investment performs poorly, the impact on the overall fund is lessened because of the diversification.
5. This strategy helps reduce the risk for investors and potentially leads to more stable returns over time.
In summary, mutual funds diversify their investors' money by spreading it across a mix of stocks and bonds, providing a way to mitigate risk and achieve broader market exposure.
