Question

Which answer choice correctly compares individual mutual funds to individual stocks as investments?

A) Mutual funds tend to be riskier.
B) Mutual funds are less expensive.
C) Mutual funds are more diversified.
D) Mutual funds tend to be more volatile.

Answer 1

Mutual funds are more diversified than individual stocks, which typically makes them a more stable and lower-risk investment. Mutual funds pool money to buy a variety of stocks and bonds, reducing the risk associated with any single investment.

Step-by-step explanation:

When comparing individual mutual funds to individual stocks as investments, one main difference is that mutual funds are more diversified. Unlike investing in a single company's stock, which can be quite risky because it depends on the performance of that one company, mutual funds pool money from many investors to purchase a broad portfolio of stocks and/or bonds. This diversification typically reduces the risk and volatility compared to individual stocks. Moreover, while both investments offer high liquidity if they are readily traded, the risks and returns for an individual mutual fund are generally lower than those for an individual stock, making mutual funds often a more stable investment choice.