What is a mutual fund?

• A. A collection of stocks and/or bonds combined into one fund.
• B. A single stock.
• C. A savings account.
• D. An insurance policy.

Answer: (A)

A mutual fund pools money from many investors to buy a diversified portfolio of stocks and/or bonds, and is managed by professionals. This setup lets you own a broad mix of assets without buying each security separately, which helps spread risk and provides professional oversight. You can buy or sell shares of the fund like other investments, giving you liquidity.

It isn’t a single stock, which would mean ownership in just one company. It isn’t a savings account, which holds cash with little to no investment risk. It isn’t an insurance policy, which is a contract for protection against certain risks rather than an investment fund.