What type of investment vehicle combines the funds of individual investors to create a diversified portfolio?

Mutual funds are investment vehicles that pool money from multiple individual investors to create a diversified portfolio of assets. This structure allows investors to benefit from professional management and diversification without having to buy each asset individually. By combining funds, mutual funds can invest in a broader range of securities, such as stocks, bonds, or other instruments, which helps to reduce the overall risk compared to investing in single securities.

Additionally, mutual funds offer investors access to various markets and asset classes, along with the expertise of fund managers who make investment decisions on their behalf. This collective investment approach aligns well with the goal of diversification, as it spreads investment risk across different securities and sectors, mitigating the impact of a poor performance by any single investment.

Other vehicles such as exchange-traded funds (ETFs) and real estate investment trusts (REITs) also provide diversification but operate under different structures. ETFs trade on an exchange like stocks and can be bought and sold throughout the day, whereas REITs specifically focus on real estate. Stocks represent ownership in a single company and do not provide the diversified approach that mutual funds do.